Barclays flips bullish on Lumentum after AI optics pullback
Barclays upgraded Lumentum after a sharp retreat from its May high, saying the optical-networking stock looks more attractive on valuation.
By Frankie Delgado · News Reporter
3 min read
Lumentum Holdings got a Wall Street boost Monday after Barclays said the beaten-down optical-networking name has started to look tempting again.
Barclays analyst Tom O’Malley raised his rating on Lumentum shares to overweight from equal-weight, according to MarketWatch. The call came after a rough stretch for the stock, even as artificial-intelligence demand has kept investors focused on optical technology used in advanced networking.
Lumentum shares finished Monday about 4.5% higher, according to MarketWatch market data.
O’Malley pointed to Lumentum’s growing networking opportunities and said optical components were the most compelling area to examine after the broader semiconductor pullback, MarketWatch reported.
A monster run, then a sharp slide
Lumentum has still delivered a wild year for shareholders. The stock has climbed 637% over the past 12 months, according to Dow Jones Market Data cited by MarketWatch.
The move helped push the company into bigger indexes. Lumentum entered the S&P 500 in March, and in May it was added to the Nasdaq-100 after its market value grew, MarketWatch reported.
But the recent tape has been tougher. MarketWatch, citing Dow Jones Market Data, reported that Lumentum is down 27% from its May 11 peak. Over the past three months, the stock has trailed the PHLX Semiconductor Index by about 36 percentage points.
O’Malley wrote that the lag may reflect investors shifting toward other AI constraints, including memory, according to MarketWatch.
Optics wait meets valuation reset
Lumentum makes co-packaged optics, components used in scale-up networking. MarketWatch described that as technology designed to increase capacity within a system, compared with scale-out networking, which links systems and racks into larger groups.
One issue hanging over the group is timing. O’Malley wrote that volume from scale-up applications is not expected to become meaningful until 2029 or 2030, MarketWatch reported.
Even with that slower timeline, O’Malley said valuation has changed the debate. As share-price multiples for Lumentum and Coherent have fallen in recent months, he sees optical names as more attractive because, in his view, the underlying business picture has not changed, according to MarketWatch.
O’Malley described Lumentum as centered on its main lasers and transceivers business, with co-packaged optics becoming an additional opportunity closer to the end of the decade, MarketWatch reported.
Needham analyst Ryan Koontz told MarketWatch that Lumentum has been affected by speculation over the rollout of co-packaged optics it is developing for Nvidia. Koontz described the technology as difficult and said delays should be expected.
Koontz also told MarketWatch he is more positive about Lumentum’s revenue opportunity in near-packaged optics designs, which he said carry lower development risk while keeping many of the benefits associated with co-packaged optics.
Demand is still the headline
Lumentum Chief Executive Michael Hurlston said in an April Bloomberg interview that the company’s products were sold out through 2027 because manufacturing capacity had not caught up with demand from hyperscalers.
Hurlston told CNBC earlier this month that Lumentum is trying to add as much capacity as possible to meet demand the company can see five years out, according to MarketWatch.
This story draws on original reporting from MarketWatch.