Lumentum: Demand for AI infrastructure exceeds capacity

Shares of U.S. optical components manufacturer Lumentum (LITE.US) are up more than 6% during Friday’s session, recovering yesterday’s decline.

Lumentum (LITE.US) price chart

Source: xStation5

The catalyst for the gains was comments from the company’s CEO, Michael Hurlston, who told Bloomberg that the company’s production capacity is already fully booked through early 2029.

According to Hurlston, in 2027 the company will be unable to meet as much as 70% of demand for most of its products. For several specific components, shortages of several dozen percent may persist into 2028.
Importantly, just six months ago Lumentum’s management expected full utilization of production capacity through 2028. Today’s statement therefore represents a “soft” but clearly higher profitability outlook.

Beating Moore’s Law

Lumentum is one of the most interesting players in the investment “AI race” and over time could end up being mentioned in the same breath as Nvidia.

The company is at the forefront of photonics, a field of science and industry focused on building computers that rely on optics and lasers for data transmission and computing.

The growing scale and complexity of AI infrastructure is quickly exhausting the physical limits of existing components based on standard cables. Optics and lasers enable faster transfer, more durable components, and lower energy losses, for example through heat.

The strategic importance of this market is also underscored by Nvidia’s USD 2 billion investment in Lumentum this year.

Improving sentiment in the sector

Today’s update is supporting the entire industry. Shares of Applied Optoelectronics are up about 7%, and Coherent about 5%, as Lumentum’s production constraints are likely to redirect some unmet demand to competitors.

From an investor perspective, the key implication is improving visibility into future demand and a potential strengthening of pricing power among optical component makers. At the same time, shortages mean missed sales opportunities, and overcoming them will require expanding expensive production capacity, which may be costly or in some cases even impossible.

After a very strong rise in sector valuations, the market will increasingly focus on the pace of production growth, margins, and actual cash flows.