Mizuho has reportedly raised its price target for Lumentum to an ambitious $930, signaling strong confidence in the company's future.
The primary driver behind this optimism is the explosive growth of AI, which is creating a major bottleneck in data centers. As AI models become larger and more complex, traditional electrical networking is hitting its limits in terms of power consumption and data transfer speeds. This is where Lumentum's advanced optical technologies, namely Co-Packaged Optics (CPO) and Optical Circuit Switches (OCS), come into play as critical solutions.
Let's first look at the CPO opportunity. The key here is NVIDIA, the dominant force in AI. NVIDIA has confirmed its timeline to commercialize CPO-integrated network switches in the second half of 2026. Lumentum is an official partner in NVIDIA's silicon photonics ecosystem, positioning it as a key supplier of the high-power lasers required for these next-generation switches. This direct partnership provides a clear and predictable path to significant revenue growth.
Next is the OCS technology. This isn't just a theoretical concept; it's a proven solution already used at scale in Google's advanced TPU data center networks. OCS allows for dynamic, all-optical connections between processors, drastically reducing latency and power consumption. Lumentum has validated this demand with a publicly announced order backlog exceeding $400 million and a bold forecast of achieving a billion-dollar revenue run-rate by 2027. This suggests that adoption is moving beyond a single major customer to the broader hyperscaler market.
These developments, especially after successful demonstrations at the recent OFC 2026 conference, have substantially increased the credibility of Lumentum's growth story. While the stock's current valuation appears high, it's forward-looking. The $930 target is based on the premise that Lumentum's earnings will surge as these CPO and OCS technologies are adopted. Given the clear demand signals and strategic partnerships, this aggressive target reflects a well-founded belief in a major technological shift.
- Co-Packaged Optics (CPO): A technology that integrates optical components directly with electronic chips (like switches or processors) to improve data transfer speed and energy efficiency.
- Optical Circuit Switch (OCS): A device that creates direct light-based connections between different points in a network, bypassing traditional electronic switches to reduce delays and power usage.
- Indium Phosphide (InP): A semiconductor material crucial for manufacturing high-performance lasers and detectors used in optical communications.