Citi Analysts Favor This 'Picks-and-Shovels' AI Stock—Is Now a Good Time to Invest?

About Lumentum Holdings

Lumentum Holdings (LITE) stands at the forefront of optical and photonic innovation, developing advanced products that support cloud computing, artificial intelligence networks, telecommunications, industrial lasers, and 3D sensing technologies. The company delivers high-speed transceivers, lasers, and subsystems to leading technology companies, facilitating rapid data transfer and sophisticated manufacturing processes in industries such as semiconductors, electric vehicles, and display technologies.

Established in 2015 following its separation from JDS Uniphase, Lumentum is based in San Jose, California, and maintains a global presence across the Americas, Asia-Pacific, Europe, the Middle East, and Africa.

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Lumentum Holdings Stock Performance

Lumentum Holdings' share price has soared on the back of strong demand from AI and data center markets, recently trading close to $692 after significant rallies. Over the past week, the stock climbed 5%, surged 90% in the last month, and jumped 128% over the past three months. In the last six months, shares have gained 458%, with a year-to-date increase of 91% and a staggering 1,438% return over the past year from lows of $45.65.

Compared to the S&P 400 MidCap Index, Lumentum's performance is exceptional. While the index posted modest gains—0.11% over five days, 3% in a month, 9% in three months, 11% in six months, and 8-15% year-to-date or over the past year—LITE’s returns have far outpaced these benchmarks, driven by the rapid expansion in the optics sector.

Financial Highlights for Lumentum Holdings

On February 3, 2026, Lumentum reported its financial results for the second quarter of fiscal 2026, achieving record net revenue of $665.5 million—a 65% increase year-over-year and a 25% rise from the previous quarter. This result surpassed analyst expectations of $646.7 million. The company posted GAAP earnings per share of $0.89 (net income of $78.2 million), while non-GAAP EPS reached $1.67, exceeding consensus estimates by 20%.

Both business segments delivered strong growth: Components revenue reached $443.7 million, up 68% year-over-year, fueled by demand for datacom lasers and AI chips. Systems revenue totaled $221.8 million, a 60% increase. Margins improved significantly, with GAAP gross margin at 36.1% and non-GAAP gross margin at 42.5%, up 1,020 basis points year-over-year due to better utilization, pricing, and a favorable AI product mix. The non-GAAP operating margin rose to 25.2%, operating profit reached $167.7 million, and adjusted EBITDA was $198.3 million. The company’s cash and short-term investments grew to $1.15 billion, with capital expenditures of $84 million to expand capacity.

Outlook and Guidance

For the third quarter of 2026, Lumentum projects revenue between $780 million and $830 million, representing a midpoint sequential growth of 21%. The company expects non-GAAP operating margins of 30-31% and earnings per share in the range of $2.15 to $2.35. CEO Michael Hurlston pointed to a robust OCS backlog exceeding $400 million and a substantial CPO order for the first half of 2027, underscoring the company’s momentum in AI-related markets.

Following the earnings announcement, LITE shares jumped 7%.

Citi Analyst Upgrades Lumentum

Papa Sylla, an analyst at Citi, reaffirmed a “Buy” rating on Lumentum and raised the price target to $800 from $560, indicating a potential 16% upside from current levels. The stock advanced more than 2% in premarket trading on Wednesday as Citi added LITE to its 30-day catalyst watch ahead of the OFC conference.

Sylla anticipates that Lumentum’s management will provide stronger-than-expected forecasts for OCS and CPO revenues or market sizes, which could prompt upward revisions to long-term revenue guidance. He also expects possible announcements regarding new CPO or OCS deployments by Lumentum or its key customers as these technologies move closer to widespread adoption.

Is LITE Stock a Good Buy?

Lumentum Holdings has delivered remarkable returns this year, reaching record highs and prompting analysts to revise their outlooks. The stock now holds a consensus rating of “Strong Buy,” upgraded from “Moderate Buy” in the previous month, reflecting increasing analyst confidence. However, the average price target of $573.72 suggests a 17% downside from current prices, indicating that analyst targets have not kept pace with the stock’s rapid ascent.

Among 20 analysts covering LITE, 14 rate it as a “Strong Buy,” two as a “Moderate Buy,” and four as a “Hold.”