Tag Archives: LITE

AI Arms Race Sparks Semiconductor Surge, NVIDIA Rises Nearly 8%, Achieving the Strongest Rally in 10 Months

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The AI “arms race” has triggered a semiconductor frenzy, with NVIDIA (NASDAQ:NVDA) stock surging nearly 8%, marking its strongest rise in nearly 10 months. Earlier, six of the seven tech giants had already reported their earnings, with the most noteworthy being that Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), and Meta Platforms (NASDAQ:META) will collectively spend approximately $650 billion on capital expenditures in 2026.

Last week, Meta announced its capital expenditures would rise to as much as $135 billion for the year, representing an 87% increase. Meanwhile, Microsoft reported a 66% year-on-year growth in its capital expenditures for Q2, and analysts predict its fiscal year capital spending through June will approach $105 billion.

Jensen Huang, CEO of NVIDIA, specifically praised OpenAI and Anthropic, two leading AI labs, stating that both are “making a lot of money.” NVIDIA invested $10 billion in Anthropic last year, and Huang earlier this week indicated plans to significantly invest in OpenAI’s next funding round. He mentioned, “If they can have twice the computing power, their revenue will increase fourfold.”

Earlier, Taiwan Semiconductor Manufacturing Company (NYSE:TSM), the world’s leading semiconductor foundry, set new performance records and announced plans to significantly increase its capital expenditures to $52-56 billion in 2026, far exceeding market expectations. This is aimed at accelerating the expansion of advanced manufacturing capacity to address the ongoing global shortage of AI chips.

CPO Industry Accelerates, Lumentum Surges Over 9%

NVIDIA, in a recent webinar, announced that three partners—CoreWeave (NYSE:CRWV), Lambda, and TACC—will deploy the IB CPO system in the first half of 2026, and Ethernet CPO products are expected to start shipping in the second half of 2026. The company believes that the CPO industry is advancing more quickly than expected, with the technology first landing in scale-out scenarios and expanding into larger market spaces. As a next-generation optical interconnect solution, the commercial value of CPO continues to become clearer, and its market potential is expanding.

Lumentum (NASDAQ:LITE) CEO Michael Hurlston stated in a recent earnings call that the company’s ongoing growth is primarily driven by cloud optical modules, OCS, and CPO. The development of the OCS business has exceeded expectations, with the first $10 million quarterly revenue target, initially set for Q3, being reached ahead of schedule. Demand for OCS from three core customers has surged, and Hurlston revealed that there is a backlog of over $400 million in OCS orders, most of which are planned to be delivered in the second half of 2026. Orders and revenue are expected to continue growing as they enter 2027.

Roivant Sciences Surges Over 22% After Promising Skin Disease Results

Roivant Sciences (NASDAQ:ROIV) saw its stock rise more than 22% after its subsidiary Priovant Therapeutics reported positive results from the phase 2 trial of its experimental drug brepocitinib. The drug showed improvements in the activity of skin nodular disease at higher doses. Another subsidiary, Pulmovant, also announced the completion of phase 2 trial enrollment involving around 120 patients for its experimental drug mosliciguat, aimed at treating pulmonary arterial hypertension associated with lung disease.

Priovant reported that patients taking a 45 mg dose showed a 22.3-point improvement on a key skin scoring system at week 16, while the placebo group showed only a 0.7-point improvement. The company noted that all patients in the 45 mg group showed significant improvement, with 62% achieving near-complete skin clearance, and 69% achieving complete or nearly complete clearance, while none of the placebo group patients achieved similar results.

Priovant plans to launch phase 3 trials in 2026, following consultations with the U.S. Food and Drug Administration (FDA).

Optical Communication Giant Lumentum Hits Record High! Morgan Stanley Comments on Earnings Report: Explosive Gross Margin and CPO Secures Major Orders!

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Lumentum has revealed that it has secured a multi-million-dollar CPO expansion order, expected to ship in the second half of 2027. Meanwhile, the company’s OCS business has backlog orders exceeding $400 million, with expectations to reach $100 million in quarterly revenue two quarters ahead of schedule. Morgan Stanley raised Lumentum’s target price from $350 to $420 but maintained an “Equal-weight” rating. Analysts noted that while the company’s fundamentals are strong, the stock price has already reflected the optimistic expectations of $20 per share earnings for the calendar year 2027, and the current 25x price-to-earnings valuation seems fairly priced.

Lumentum, the optical communication giant (NASDAQ:LITE), delivered a “blowout” Q2 earnings report, surpassing expectations across traditional metrics and providing solid guidance on critical AI infrastructure technologies, securing multi-million-dollar orders. The company is meeting the expectations of Wall Street bulls, though its valuation now reflects these optimistic forecasts.

In early trading today, Lumentum rose more than 10%, reaching a new all-time high.

According to Wind Trading Desk, Morgan Stanley analysts Meta A. Marshall and Mary B. Lenox released a recent report stating that Lumentum’s non-GAAP gross margin for Q2 was 42.5%, exceeding analysts’ expectation of 38.6% by 385 basis points. This was mainly due to product mix optimization and price increases on EML lasers. This performance drove earnings per share to $1.67, significantly higher than the expected $1.38.

More importantly, the company made substantial progress in the emerging CPO market. Lumentum disclosed that it has secured a multi-million-dollar CPO expansion order, which is expected to ship in the second half of 2027. Additionally, its OCS (Optical Subsystems) business backlog has surpassed $400 million, and the company expects to hit $100 million in quarterly revenue two quarters ahead of expectations.

Morgan Stanley raised Lumentum’s target price from $350 to $420, but maintained an “Equal-weight” rating. Analysts noted that while the company’s fundamentals are strong, the stock price has already priced in the optimistic expectation of about $20 earnings per share for the calendar year 2027, and the current 25x price-to-earnings multiple is already quite fully valued.

Gross Margin Exceeds Expectations, Pricing Power Evident

Lumentum’s Q2 gross margin performance became the highlight. The company reported non-GAAP revenue of $665.5 million and earnings per share of $1.67, both exceeding Morgan Stanley’s expectations of $648.6 million and $1.38.

The outperformance in gross margin was primarily driven by two factors: first, product mix improvement, with higher-margin EML lasers and OCS products gaining a larger revenue share. Second, the company successfully implemented price hikes amidst persistent supply constraints. Management indicated that despite increasing capacity by 20% in Q4, supply shortages persist, which gives the company pricing power.

Non-GAAP operating margin reached 25.2%, also significantly surpassing Morgan Stanley’s expectation of 20.6%. The company demonstrated its ability to increase both revenue and margin in a strong demand environment.

As a result, Morgan Stanley raised its earnings forecast significantly. Q3 revenue and earnings per share expectations were raised from $695.3 million and $1.56 to $804.3 million and $2.24. For FY2026, full-year revenue and earnings per share expectations were raised from $2.621 billion and $5.60 to $2.915 billion and $7.63.

CPO Business Wins Major Orders, OCS Accelerates Ramp-Up

While Lumentum’s current performance is driven by EML lasers, the company’s valuation premium is entirely based on its bets on future AI network architecture—OCS and CPO. The report reveals that progress in these two businesses is accelerating faster than expected.

CPO Secures Multi-Million-Dollar Order: Previously, the market saw CPO mostly in the technical exploration stage, but Lumentum revealed that it has received an additional “multi-million-dollar” purchase order for scale-out CPO, expected to begin shipments in the second half of 2027 (CY27). This marks a key milestone in the commercialization of CPO.

OCS Backlog Orders Surge: The optical switching business (OCS) is ramping up faster than expected. The current backlog orders exceed $400 million, and the company expects to reach a $100 million quarterly revenue scale two quarters earlier than planned. This means that the demand for optical switching in AI clusters is accelerating. The majority of the backlog orders are expected to ship in Q1 and Q2 of FY2027 (the second half of 2026).

Supply Chain Status: Ongoing Shortages, EML Controls Pricing Power

Although Lumentum increased capacity by 20% in Q4, supply shortages remain a challenge. This supply-demand imbalance has created a powerful pricing moat for the company.

The 1.6T Era Benefits EML: The company observed that the majority of initial demand for 1.6T optical modules is directed towards EML lasers. This means that in the competition for next-generation high-speed modules, EML remains dominant.

Strong Pricing Power: Management explicitly stated that due to the broad demand for laser chips, components, and subsystems, supply constraints continue, which grants the company pricing power. Morgan Stanley raised its margin expectations for the future based on the assumption that price increases will be successfully passed on to customers.

Valuation Risk: High Growth Already Priced In

Given the strong fundamentals, Morgan Stanley raised its earnings forecast significantly. Analysts predict a compound annual growth rate (CAGR) of a staggering 158% for Lumentum’s earnings from FY2025 to FY2027.

Morgan Stanley raised its target price to $420, based on a 28x P/E multiple applied to an estimated earnings per share of $15 for the calendar year 2027 (CY27).

Despite the solid fundamentals, Morgan Stanley maintains an “Equal-weight” rating. The reason is that the strong rebound in the stock price following the earnings report (up 30% from its low point) has already priced in some of the expectations.

The report points out that buy-side expectations are even more aggressive than Morgan Stanley’s, already pricing in $20 earnings per share for CY27. The current stock price corresponds to a P/E multiple of nearly 25x based on the optimistic CY27 earnings per share in Morgan Stanley’s bull case scenario.