Lumentum Holdings Inc (LITE) shares fell sharply on Wednesday after the company reported mixed fiscal third-quarter results, with strong growth failing to meet elevated market expectations.
The stock declined about 5.3% to around $941, snapping a streak of five consecutive sessions of gains.
The pullback comes despite robust demand trends tied to artificial intelligence infrastructure, which have driven significant gains in the stock this year.
Strong growth but misses high expectations
Lumentum reported adjusted earnings of $2.37 per share for the fiscal third quarter, beating Wall Street expectations of $2.27 and rising sharply from 57 cents a year earlier.
Revenue surged 90% year-over-year to $808.4 million but slightly missed consensus estimates of $810 million.
Operating margin improved significantly to 32.2%, compared with 10.8% in the same period last year, reflecting strong execution and product mix.
Chief executive Michael Hurlston highlighted the company’s margin trajectory, stating, “Margin improvement has been driven by many factors,” and adding, “As our key growth drivers of co-packaged optics and optical circuit switches begin to kick in, we would expect further increases in earnings power.”
The company had previously guided for third-quarter earnings between $2.15 and $2.35 per share and revenue between $780 million and $830 million.
AI-driven demand continues to support outlook
Lumentum’s performance continues to be supported by rising demand from hyperscalers investing heavily in AI infrastructure.
The company’s optical networking products enable communication between high-performance computing chips used in AI workloads.
For the fiscal fourth quarter, Lumentum projected revenue between $960 million and $1.01 billion and earnings of $2.85 to $3.05 per share.
Both the low ends of these ranges exceed Wall Street expectations of $917 million in revenue and $2.69 per share in earnings.
Analysts pointed to strong momentum across key segments, including datacom laser chips, cloud transceivers, telecom products, and optical circuit switches.
JPMorgan analyst Samik Chatterjee noted that the company continues to benefit from “robust demand for Telecom and DCI (Data Center Interconnect) products” and “transceiver demand from large customers.”
He added that Lumentum “again raised the bar for other optical companies,” despite some supply constraints affecting upside potential in cloud and datacom chip revenues.
Analysts raise targets despite stock pullback
Despite the negative stock reaction, analysts broadly raised their price targets following the earnings release.
Rosenblatt Securities maintained a Buy rating and lifted its target to $1,300, while JPMorgan reiterated an Overweight rating and raised its target to $1,130.
Morgan Stanley analysts also increased their price target to $900 from $710, though they cautioned that recent gains could lead to short-term consolidation.
They noted that fiscal third-quarter results and guidance were largely expected and that “given the run up in the name, may cause some near-term digestion.”
“With demand for product continuing to grow, that sets the stock up to maintain bull case valuation in the near term, as pricing power is unlikely to ease,” the analysts wrote.
Lumentum shares have surged 140% this year, supported by strong AI-related demand and increased capital spending by major technology companies.
The stock also joined the S&P 500 in March as part of its quarterly rebalancing.
In addition, Nvidia announced a $2 billion investment in Lumentum earlier this year, alongside multibillion-dollar purchase commitments, underscoring the strategic importance of optical networking technology in AI infrastructure.
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