TenQ

The Lumentum story

Lumentum makes lasers and optical systems for communications and AI infrastructure, with its expansion hinging on whether manufacturing capacity can keep pace with NVIDIA commitments and demand for optical links inside computing racks.

Lumentum stock reportTenQ Score 15/36 · every chart and check from its filings
  • $824.13share price, last close
  • $73.9Bmarket value
  • 15/36TenQ Score checks passed
  • 56.3%growth a year the price assumes

The story in brief

  • AI demand accelerates. Revenue reached $1.01 billion in the quarter to June 2026, with Components growing 102.7% and Systems growing 122.6% from a year earlier.
  • Loss needs context. A one-time, non-cash debt extinguishment charge of $7.8 billion drove the June 2026 quarter's GAAP net loss, while GAAP operating margin reached 27.8%.
  • Liquidity supports expansion. Lumentum ended June 2026 with $2.7 billion in cash, cash equivalents, and short-term investments against $1.6 billion in total debt.

What drives the business

  • Lumentum's March 2026 non-exclusive strategic agreement with NVIDIA includes a multibillion-dollar purchase commitment and future capacity access rights for advanced laser components, alongside a $2 billion investment supporting research, capacity, operations, and a new U.S. fabrication facility.
  • Its optical products connect cloud and AI infrastructure and telecommunications networks, while industrial lasers serve precision manufacturing and laser emitters support consumer sensing.
  • Lumentum operates as one integrated segment but reports Components and Systems product categories, with Components supplying chips and subsystems for customers to integrate and Systems delivering complete optical modules, optical circuit switches, and industrial lasers.
  • Components accounted for 64.5% of revenue and Systems for 35.5% in the quarter to June 2026, while fiscal year 2026 revenue grew 83.2%.
  • Management identified optical circuit switches, cloud modules advancing 1.6T adoption, and early demand for optical connectivity inside computing racks as additional sources of growth.

What the price assumes

At $1,133.40, the reverse DCF implies free cash flow after stock pay grows 62.0% a year for ten years, using a 10.3% discount rate.

That compares with a delivered rate of -21.2% a year over the last 3 fiscal years and the TenQ check's bar of -8.6%, which moves the historical rate halfway toward 4%.

Revenue growth of 83.2% over the last twelve months shows the business accelerating, but the 0.3% free cash flow yield and 33.7x price to sales leave a substantial gap between cash generation and the growth embedded in the price.

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What could change the story

  • AI and cloud demand has exceeded available supply, making manufacturing expansion and suppliers' ability to meet production, quality, and delivery requirements central execution risks.
  • Customer inventory corrections previously delayed shipments and left manufacturing capacity underused, so capacity investment also exposes Lumentum to changes in order timing and demand.
  • Tariffs, export controls, component shortages, and shifts in product mix could raise costs or reduce margins even as revenue grows.
  • Stock-based pay of $170 million was substantial against $300 million of free cash flow over the last twelve months, making cash generation after stock pay an important distinction from reported growth.

What to watch next

  • For the first quarter of fiscal year 2027, Lumentum expects revenue of $1.225 billion to $1.275 billion, non-GAAP operating margin of 39.5% to 40.5%, and non-GAAP diluted net income per share of $4.05 to $4.35.
  • Progress on the new U.S. fabrication facility and manufacturing expansion will show whether supply is catching up with NVIDIA commitments and broader AI demand.
  • Further orders for optical connectivity inside computing racks, adoption of 1.6T cloud modules, and optical circuit switch revenue will help distinguish early engagements from established revenue streams.
  • Free cash flow and stock-based pay will show whether the operating expansion is improving cash generation after stock pay.

Sources

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