Shares of Lumentum (NASDAQ:LITE | LITE Price Prediction) are trading at $936.95 in Thursday’s session, hovering near flat after opening at $925.02. The broader optical complex is mixed as the group digests a heavy earnings week. Ciena (NYSE:CIEN) is up 6.04%, while Coherent (NYSE:COHR) is down 3.66% and Cisco (NASDAQ:CSCO) is off 8.27%.
Despite choppiness in earnings season, optics stocks have generally rallied across the past year. A quote from Lumentum CEO delivered during the company’s Q4 earnings call on Monday provides context into why so many stocks that have been flat for a decade are now seeing their share charts inflect up at a record rate.
The Backbone Quote That Highlights How Crazy Today’s Buildout Is
Hurlston told investors: “To put this in perspective, for one major hyperscaler, the network capacity connecting just 2 AI data center sites could double the total global backbone capacity they built over the entirety of the last decade. To support the growth and scale across deployments, we have secured multiple long-term customer agreements that helped offset our planned capital expenditures. We continue to expect a fourfold increase in our pump laser shipments over the next several quarters to meet this escalating demand.”
There are a couple of major ramifications from this quote. First, the capacity claim is scoped to one hyperscaler. Backbone capacity refers to the long-haul optical links that carry traffic between data center campuses, a layer distinct from the fabric inside a single building. Linking AI training and inference sites across geographies is a distinct buildout (known as scale-across), and it draws on a different and costlier class of photonics than in-building networking: coherent transceivers, amplified line systems, and dedicated fiber, rather than short-reach pluggables.
Unit volumes remain far smaller than intra-datacenter optics, but the per-port cost and the supply-chain constraints are materially different.
Second, a fourfold increase in pump laser shipments over the next several quarters is a physical capacity signal. Pump lasers drive optical amplification across long-haul and DCI links. The fact Lumentum expects a fourfold increase shows how much demand is coming to the data center interconnect space.
Companies with exposure to ‘scale across’ networking have already seen massive share gains across the past 18 months, but their revenue inflection point is beginning in earnest today.
How Companies Fit into the DCI Buildout
Lumentum’s quarter reported revenue of $1.006 billion, up 109.3% year over year, with non-GAAP EPS of $3.23 versus the $2.97 consensus. Non-GAAP gross margin reached 50.4% and operating margin hit 36.6%. Q1 fiscal 2027 revenue is guided to $1.225 billion to $1.275 billion, which Hurlston said reaches the target operating model more than a quarter ahead of schedule. Details are in the 8-K filing.
Overall, Lumentum maintains strong leadership in laser production. As quoted earlier, the company is quadrupling pump lasers and also is very strong in narrow-linewidth laser assemblies. DCI isn’t Lumentum’s main business, but it is a nice boost in addition to Lumentum’s opportunity in EML chips, CPO and external laser sources, and optical circuit switching.
Marvell (Nasdaq: MRVL) is another company with significant exposure to data center interconnects. The company has a variety of pluggables (COLORZ, OpenZR+, etc) that serve the market. Marvell also has significant opportunities within the data center (scale-up and scale-out), and the company’s recent Celestial acquisition is already being hailed as one of the smarter technology buys in recent years.
Ciena broadly operates across the DCI stack. That includes coherent modems, pluggables, line systems, and software. The company is betting on significant growth from its multi-rail products that landed their first major order from a hyperscaler last quarter.
Finally, Nokia is another broad play on the DCI opportunity. The company’s Infinera acquisition will go down as a company changer, as it gave Nokia an incredibly broad portfolio in a market that’s now booming. Nokia has coherent pluggables for DCI, full-band transponders, and a broad portfolio for short-reach campuses as well.
Where Each Peer Sits
Ciena and Nokia (NYSE:NOK) sell the transport systems that carry backbone traffic. Coherent and Lumentum supply components and transceivers layered inside those links. Cisco touches the layer through Acacia’s coherent pluggables. All are exposed to the same scale-across demand curve Lumentum described.
| Ticker | Session | YTD |
|---|---|---|
| LITE | +0.48% | 152.98% |
| CIEN | +6.04% | 84.74% |
| COHR | -3.66% | 92.69% |
| NOK | +3.85% | 61.85% |
| AAOI | +0.22% | 296.10% |
| CSCO | -8.27% | 63.15% |
The extraordinary YTD gains are themselves the central risk. Yet, the entire industry looks set to grow in an outsized way compared to broader data center spending for years to come. Ciena currently trades for about 30X 2028 earnings. That’s a steep number, but there’s also a strong chance Wall Street is underestimating where 2028 earnings will land. Even if you currently don’t have exposure to companies in the scale across space, understanding the story is important. Many names in this article fell dramatically in July amongst a broader market sell-off. If another opportunity like that emerges, many names mentioned in this article should be at the top of your buying list.
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