Lumentum delivered a strong Q2 performance, with non-GAAP earnings of $1.67 per share beating estimates by 18.68% and non-GAAP revenues of $665.5 million increasing 65.5% year-over-year. The growth was driven by strength in optical components and systems, particularly in response to NVIDIA’s datacenter architectures.

For Q3 2026, Lumentum expects revenues of $780 to $830 million, operating margin of 30-31%, and earnings of $2.15 to $2.35 per share. Analysts are already projecting 87.5% growth for Q4 and full-year 2026 sales of $2.9 billion, representing over 76% annual growth.

NVIDIA’s collaboration with Coherent on silicon photonics networking switches using co-packaged optics (CPO) has driven investor enthusiasm. This move towards optical solutions for AI factories allows for millions of GPUs to be connected with low latency. The collaboration has led to significant growth for Coherent, and signals the shift towards optical interconnect solutions.

Lumentum’s partnership with TSMC is crucial in developing Co-Packaged Optics (CPO) for NVIDIA’s next-gen platforms. By integrating optics into chip packages, power consumption is reduced and signal integrity is improved. TSMC’s Compact Universal Photonic Engine (COUPE) allows for the stacking of Electrical IC and Photonic IC, enabling the success of CPO.

After initial hesitation, investors are showing increased confidence in Lumentum’s growth potential, with shares reaching new highs post-earnings. Analysts are revising estimates upwards, reflecting strong sales projections and improving margins. Lumentum’s position in the optical market, driven by partnerships with key players like TSMC and NVIDIA, is fueling optimism for future growth. NVIDIA (NVDA) is poised for growth in the next five years with the need for optical components at multiple stages. Analysts have set price targets, with the highest at $580 and the lowest at $475. Lumentum (LITE) is expected to surprise again, potentially raising their price target to $650.

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Read more at Nasdaq: Bull of the Day: Lumentum (LITE)