Up 49% in 3 months, this magnificent artificial intelligence (AI) stock can continue to skyrocket

This AI Stock Soared 49% in 3 Months – Is It Poised for Even Greater Heights?

The artificial intelligence revolution is reshaping industries, and savvy investors are constantly searching for companies at the forefront of this transformative wave. While many focus on software and chip giants, the infrastructure powering AI is equally crucial. Today, we're spotlighting a company that has already seen its stock jump an incredible 49% in just three months, yet still presents a compelling case for significant further upside: Lumentum Holdings (NASDAQ: LITE).

Lumentum, a key player in the optical and photonics components sector, is riding the crest of the AI tsunami. Its specialized products are essential for enabling the high-speed data transmission required by modern AI data centers and telecom networks. As AI models grow more complex and data volumes explode, the demand for Lumentum's high-performance networking solutions is skyrocketing.

The AI Infrastructure Backbone: Lumentum's Critical Role

At the heart of every powerful AI application lies a robust data center, capable of processing colossal datasets at lightning speed. Lumentum's components are the unsung heroes facilitating this. They provide the necessary high-speed optical networking infrastructure that ensures data can be transferred with minimal delay – a non-negotiable requirement for intensive AI computations. This foundational role places Lumentum in an enviable position within the burgeoning AI ecosystem, making it far more than just another tech stock; it's an enabler of the entire AI future.

Exceptional Growth and Margin Expansion Driving Profitability

Lumentum's recent financial performance offers a clear demonstration of its strong market traction. For its fiscal 2025 fourth quarter (ended June 28), the company reported a phenomenal 56% year-over-year increase in revenue, reaching $481 million. This isn't just top-line growth; it's a profound turnaround in profitability.

A crucial highlight was the dramatic improvement in its margin profile. Lumentum reported a non-GAAP operating margin of 15% in Q4, a remarkable leap from a negative 5.1% in the prior-year period. This surge in margins is attributed to a favorable product mix and increased manufacturing utilization rates. Consequently, the company successfully swung from an adjusted loss of $0.13 per share last year to a robust profit of $0.88 per share this quarter. These figures paint a picture of a company not only growing rapidly but also becoming significantly more efficient and profitable.

Booming Demand and a Clear Path Ahead

The future looks exceptionally bright for Lumentum, with management confident in sustaining this impressive growth momentum. The demand for its laser components and high-speed optical networks, particularly from cloud and AI infrastructure segments, is currently outstripping supply. This strong demand environment is evidenced by:

• Record Orders and Shipments: Lumentum ended the quarter with an unprecedented level of orders and shipments for its advanced laser components and optical modules.
• Hyperscale Customer Expansion: The company has swiftly added a third hyperscale customer for its optical circuit switches, building on the success with its initial two customers.
• Historic Purchase Commitment: Lumentum recently secured its largest single purchase commitment ever for its ultra-high power lasers, underscoring the immense confidence its clients have in its technology.

Despite ongoing efforts to expand manufacturing capacity, Lumentum anticipates that demand will continue to exceed supply through fiscal year 2026. This supply-demand imbalance is likely to foster a favorable pricing environment, enabling the company to realize further margin gains. The long-term market outlook is equally compelling, with the optical transceivers and laser components market projected to quadruple in size between 2024 and 2030, reaching an annual revenue of $20 billion.

The Investment Case: Why Lumentum Could Continue to Skyrocket

Lumentum's management has provided an optimistic outlook for the upcoming quarters, guiding for Q1 fiscal 2026 revenue between $510 million and $540 million, representing a 56% year-over-year increase at the midpoint. Furthermore, the company aims to achieve $600 million in revenue by the fourth quarter of the current fiscal year, signaling sustained aggressive growth.

Financial analysts are equally bullish, forecasting that Lumentum's earnings per share (EPS) will more than double in the current fiscal year from the previous year's $2.06 per share, with continued impressive gains projected over the next couple of years. Based on these projections, specifically an estimated EPS of $7.11 in fiscal 2028, and assuming a conservative forward earnings multiple of 30x (in line with the tech-heavy Nasdaq-100 index), Lumentum's stock price could theoretically reach $213 within the next three years. This represents a potential upside of approximately 83% from its current levels.

Actionable Insight for Investors

For investors seeking exposure to the high-growth AI sector, Lumentum presents a compelling opportunity. Its critical role in AI infrastructure, coupled with its proven ability to rapidly grow revenue and expand margins, positions it for continued success. The robust demand, expanding customer base, and clear market tailwinds suggest that Lumentum's impressive run is far from over. This is a stock to watch closely and potentially consider for a growth-oriented portfolio.