Alphabet’s latest earnings report has renewed optimism for companies like Lumentum supplying optical networking and data center components, even as investors scrutinize the rising cost of artificial intelligence infrastructure.
While some investors focused on Alphabet’s higher capital expenditure plans, Stifel analysts said the company’s results reinforced expectations that AI infrastructure spending remains robust.
“The first hyperscaler print this earnings cycle reinforces our view that the AI data center buildout is not decelerating,” the analysts wrote following Alphabet’s quarterly results.
Alphabet’s continued investment is viewed as a positive signal for suppliers of interconnects, optics and networking hardware used in AI data centers.
The company is one of several hyperscalers, alongside Microsoft and Amazon, that are investing heavily in expanding AI infrastructure.
According to Stifel, Alphabet’s results support companies with significant exposure to AI data center deployments.
Stifel highlights Lumentum, Coherent and other AI infrastructure suppliers
Stifel identified Lumentum Holdings, Celestica and Coherent as the hardware companies with the greatest exposure to Alphabet’s spending.
The brokerage also pointed to Marvell Technology as an important supplier of optical digital signal processors, while Semtech was highlighted for its growing supply of active copper cable to Alphabet.
Monolithic Power Systems was also identified as having meaningful exposure through power-related products.
“This initial read is overwhelmingly positive for the space and should skew positive for the CapEx spend insights from the other hyperscaler reports to follow,” the analysts added.
The brokerage suggested investors could look at these companies ahead of earnings from other hyperscalers. Microsoft is scheduled to report results on July 29, followed by Amazon on July 30.
Lumentum shares gained after Barclays also upgraded the stock to Overweight, citing strong demand for the company’s optical and laser components used in AI data centers.
Barclays also assigned a $1,000 price target while pointing to expectations ahead of Lumentum’s fiscal fourth-quarter earnings in August.
Lumentum stock (LITE) gained 1.8% on Thursday’s session.
Lumentum expands AI positioning through acquisitions
Lumentum has increasingly positioned itself as a beneficiary of the AI infrastructure boom by expanding its portfolio of optical and photonic technologies.
According to Seeking Alpha analysts, the company has diversified beyond legacy telecommunications markets through acquisitions including Oclaro, NeoPhotonics, IPG Photonics and Cloud Light Technology.
These deals have expanded Lumentum’s exposure to cloud computing, AI, machine learning and high-speed optical networking.
The company reported that its Cloud & Networking segment accounted for 85.7% of fiscal 2025 revenue, up from 58.9% in fiscal 2022 under its previous Telecom and Datacom reporting structure.
The analysts also highlighted several long-term growth opportunities, including Optical Circuit Switches, expanding optical scale-out deployments and the anticipated transition toward optical scale-up architectures beginning in 2028.
Lumentum reported fiscal third-quarter 2026 revenue of $808.4 million, up 90.1% year over year, supported by accelerating laser sales tied to AI infrastructure demand.
Looking ahead, the analysts said broader adoption of Co-Packaged Optics for application-specific integrated circuits could drive additional demand for Lumentum’s next-generation ultra-high-power lasers beginning in 2027.
At the same time, the experts warned that Lumentum continues to face execution risks, including elevated debt levels, uneven cash generation and shortages of critical components that could affect future capacity expansion.
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