JPMorgan raises Lumentum target price to $950, seeing a clearer path to profitability above $25

Overview

This report is JPMorgan's company research update on Lumentum. Following the investor briefing and OFC-related meetings, the report raised financial forecasts and the target price, arguing that visibility is improving across AI-related Datacom, CPO, OCS, EML, DCI and transceiver businesses, making the path to profitability above $25 more credible.

Core views

The core view is that Lumentum's growth funnel is expanding across multiple themes: CPO and OCS provide visibility into long-term scaling opportunities, EML and DCI core businesses remain strong and may be modeled conservatively, and the Cloud Light acquisition increases exposure to Datacom and the AI theme. The report also notes that Greensboro fab ramp-up, OCS expansion execution and the transceiver supply chain are key execution variables to monitor.

Analysis framework

The report uses an earnings revision and P/E valuation framework, updating CY27 and CY28 revenue and EPS estimates and deriving the $950 target price using about 30x CY28E EPS; it also breaks down medium-term revenue and profit leverage from CPO, OCS, ELS, EML, DCI, TRx and other drivers.

Methodology notes

• equity_valuationP/E valuation

  Derive the target price by applying an approximately 30x target P/E multiple to CY28E EPS.

  JPMorgan believes this multiple is above historical averages, but improving AI-related investment demand can support a higher valuation.

• earnings_forecastMedium-term earnings revision

  Raise CY27-CY28 earnings forecasts by updating assumptions for revenue, gross margin, expenses and segment growth.

  The report lifts CY27 revenue/EPS forecasts to about $7bn/$24 and expects CY28 revenue of about $10bn and EPS above $36.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• LUMENTUM HOLDINGS INC (US.LITE)

  Core covered name

  Strengths

  AI-driven Datacom demand, the Cloud Light acquisition, CPO/OCS growth, strong EML and DCI demand, and potential high-margin ultrahigh-power laser opportunities.

  Weaknesses

  Near-term transceiver supply constraints, plus 3D Sensing share loss and Telecom/Datacom inventory adjustments, have been drags.

  Comparison

  The report believes the stock still trades below its long-term historical multiple based on CY28 valuation, and AI demand supports a higher multiple.

  Risks

  Price pressure, customer vertical integration, customer concentration, Greensboro fab ramp-up, OCS expansion and supply chain disruptions.

• COHERENT CORP (US.COHR)

  Related peer / beneficiary name

  Strengths

  Also benefits from the expansion of scale-up networking and optical communications opportunities.

  Weaknesses

  The report does not provide specific financial forecasts.

  Comparison

  The text notes that both Lumentum and Coherent should benefit in the long run from CPO and OCS-related opportunities.

  Risks

  Like the optical components industry, it faces price pressure and customer / supply chain risks.

Key data

• RatingOverweightThe report maintains an Overweight rating on LITE shares.
• Target price$950.00December 2026 target price, raised from the previous $565.00.
• Current price$896.02As of 2026-04-08.
• CY27 forecastRevenue about $7bn / EPS $24Previously about $6bn revenue / roughly $20 EPS.
• CY28 forecastRevenue about $10bn / EPS $36+Used to support a valuation at about 30x CY28 earnings.
• Near-term CPO milestoneDec-Q revenue could reach $100mnFollowed by the delivery of several hundred million dollars of commitments in early CY27.
• OCS opportunity2H26 revenue could reach $400mn, with an annualized run-rate above $1bn in CY27Supported by a multi-year, multi-billion-dollar agreement with a major OCS customer, with upside from new customers and new form factors.
• F4Q26 forecastRevenue $907mn / EPS $2.65Cut due to short-term transceiver supply constraints, close to Street consensus revenue of $906mn / EPS of $2.68.

Impact & implications

The implication for LITE is broadly positive: AI-related optical networking investment is expanding the company's addressable market, and long-term earnings revisions may make investors more willing to value the stock off CY28 and beyond earnings. However, near-term transceiver supply and capacity ramp risks mean share performance still depends on execution delivery.

Risks

• Annual pricing pressure in the optical components industry may accelerate, weighing on earnings forecasts.
• Optical system suppliers such as Ciena and Cisco may vertically integrate in the future, increasing competition and pricing pressure.
• High exposure to major customers such as Google means changes in key customer relationships could hurt financial results.
• Greensboro fab ramp-up requires managing the transition with Qorvo and the conversion from GaAs to InP processes.
• OCS demand expansion requires coordination across multiple contract manufacturers, increasing execution complexity.
• Production cuts at external laser suppliers have caused short-term transceiver supply interruptions, which may limit near-term upside.

What to watch

• Whether CPO revenue reaches $100mn as planned in Dec-Q and delivers several hundred million dollars of commitments in early CY27.
• Whether OCS reaches $400mn revenue in 2H26 and exceeds a $1bn annualized run-rate in CY27.
• Whether new OCS customers, the 1RU new form factor and higher port density can create a step-change in scale.
• Whether EML capacity expansion adds more than 50% incremental capacity by the end of CY26, and progress on 6-inch wafer conversion.
• Whether the Greensboro fab can smoothly contribute more than $5bn of revenue capacity in CY28 and beyond.
• Summer shipments of 1.6T transceivers, vertical integration of CW lasers, and easing of supply constraints.
• Whether gross margin is lifted by high-margin products such as ultrahigh-power lasers, and whether expense growth stays below model assumptions.