The story of the week is absolutely massive capex numbers from hyperscalers. Amazon reported earnings last night and guided to $200 billion in capital expenditures, Wall Street had expected them to announce about $140 billion in spend.
Alphabet (NASDAQ:GOOGL | GOOGL Price Prediction) announced $175 to $185 billion in capital expenditure for 2026. Meta Platforms (NASDAQ:META)’s guided to a $135 billion commitment at the high end.
This is the largest single-year infrastructure buildout in corporate history, aimed at dominating the AI infrastructure race.
The obvious winner is NVIDIA (NASDAQ:NVDA), which will capture the lion’s share of GPU spending. But there’s another play flying under the radar: Lumentum Holdings (NASDAQ:LITE), the optical components supplier that’s become essential for AI data centers. While everyone focuses on chips, the real bottleneck is moving data between those chips fast enough. That’s where Lumentum comes in.
Why Optical Components Matter for Google’s AI Buildout
Google’s TPU infrastructure requires massive data flow between compute nodes with minimal latency. Traditional copper interconnects have limitations that include bandwidth and distances required in modern AI clusters. Lumentum manufactures the optical transceivers, switches, and coherent subsystems that make high-speed data center interconnects possible. Google isn’t just buying more GPUs—they’re building entire AI factories that need optical networking at every layer.
Lumentum has a couple of key advantages. First, the company has expertise in narrow linewidth lasers that are excellent for future optics growth markets like copackaged optics. Second, the company is a preferred supplier for optical circuit switching (OCS). That’s particularly important because Google’s TPU infrastructure uses OCS, meaning Lumentum is a prime beneficiary of their massive capital expenditure plans.
The numbers tell the story. Lumentum reported $1.67 in Q4 fiscal 2025 earnings per share, crushing estimates of $1.41 for an 18.44% beat. The company delivered $4.22 in full-year EPS versus $0.95 the prior year, representing 344% year-over-year growth. CEO Alan Lichtman highlighted “strong momentum across data center, data center interconnect, and long-haul markets” with expectations for sequential revenue growth exceeding 20%.
Morgan Stanley (NYSE:MS) raised their price target on Lumentum to $350, citing “bullish sentiment on earnings power, OCS opportunities, and exposure to Google.”
The Stock Has Already Started Moving
Lumentum shares have climbed 449.87% over the past year, and are up another 8% in premarket trading this morning.
The stock surged 28.57% in just the past week and is up 33.06% year-to-date. Mizuho named it a top 2026 pick, and momentum is accelerating. Reddit sentiment remains muted with very low retail activity, meaning institutional money is driving this move.
Here’s the key insight: analyst estimates for Lumentum were built before Google announced this massive capex increase. If Google is spending $175 to $185 billion in 2026 instead of the roughly $91 to $93 billion they guided for 2025, that’s a step-function increase in optical component demand.
Lumentum’s revenue projections could see significant upward revisions. The company is sitting on $1.12 billion in cash and Wall Street expects revenue next quarter of $809 million, but the company said on their call they’re undershipping demand by 30%. That is to say, Lumentum will sell as much product as it can build in 2026.
Top Gaining Stocks
Top Losing Stocks