A BNP Paribas analyst thinks Lumentum's stock can climb another 40% as it ramps production capacity for ultrahigh-powered lasers and capitalizes on AI-driven demand for its products
Even with the extreme rally over the past year, it's not too late to get in on Lumentum Holdings shares, according to a BNP Paribas analyst.
Shares of the optical-components maker have surged almost 1,000% over a one-year span, reflecting the growing importance of the company's products amid the data-center buildout. Lumentum's gain ranks as the second-best performance among current S&P 500 SPX components over that period, according to Dow Jones Market Data.
But BNP Paribas analyst Karl Ackerman thinks the rally still has legs, with his new price target of $1,040 - up from $625 before - implying 43% upside from Monday's close of $728.95.
Shares of Lumentum rose 3% on Monday, after the company officially joined the S&P 500.
Ackerman said in a Monday note that he expects the Lumentum to benefit from increased demand for optical transceivers, lasers and other optical components used in artificial-intelligence data centers.
The company announced last week at the Optical Fiber Communication Conference that it sees the total addressable market for optical interconnects growing to $90 billion by 2030, up from around $18 billion today.
Ackerman is so bullish on Lumentum partly because of the strong demand for the company's ultra-high powered lasers. Earlier this month, Nvidia announced a $2 billion investment in Lumentum, which Ackerman believes will lead the company to ramp up its UHP laser production.
Ackerman also noted that Lumentum's purchase of a new fab in Greensboro, North Carolina - which he said can generate $5 billion in annual revenue capacity - will support UHP laser production in the coming years.
Nvidia will also be a major buyer of optical components for its forthcoming Vera Rubin AI infrastructure, its new generation of computer hardware systems, he said. And Ackerman also expects Google to be a major buyer of the company's optical circuit switches.
Meanwhile, in a Sunday note to clients, TD Cowen analyst Sean O'Loughlin defended his recent neutral initiation of Lumentum's stock. While he said he appreciates the "significant demand Lumentum is seeing in its lasers business, especially on the UHP side," he thinks bullish investor estimates are "already well ahead" of the current consensus view.
O'Loughlin has a more bullish view of Coherent $(COHR)$, which he thinks offers similar growth opportunities but with a less demanding stock valuation. Lumentum's stock trades at 55 times earnings-per-share estimates for the next 12 months, according to FactSet data, versus 37 times for Coherent's stock.
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