Key Takeaways:
Lumentum Holdings Inc. (LITE) reported a 90% surge in fiscal third-quarter revenue that still fell just short of Wall Street’s high expectations, sending shares down despite a forecast that crushed estimates.
"Our forward guidance calls for over 85 percent year-over-year revenue growth, yet we are only at the starting line for two substantial opportunities: optical circuit switches (OCS) and co-packaged optics (CPO),” CEO Michael Hurlston said in a statement preceding the results.
The optical components maker posted earnings and revenue for the quarter ended March 29. The after-hours stock decline highlights the immense expectations built into Lumentum, which has seen its valuation soar on the thesis that its products are essential for building out AI data centers.
Shares fell as much as 6% in after-hours trading before paring the loss to about 5%. The reaction came even as Lumentum projected fourth-quarter revenue and profit that were significantly above analyst estimates. The company expects revenue of $960 million to $1.01 billion, easily surpassing the $917.5 million average estimate. Adjusted earnings are forecast to be between $2.85 and $3.05 per share, compared to the consensus of $2.69.
The stronger-than-expected forecast is underpinned by what management described as a frantic scramble for its components that enable AI and data center expansion. Hurlston said the supply-demand imbalance for core products like EML and pump lasers is now more severe than previously reported, with a supply gap exceeding 30%.
"In the foreseeable future, these components are effectively sold out," Hurlston told analysts on the earnings call. "We are having to make choices on who to support. We try to be as fair and reasonable as we can, but we are being forced to choose how we allocate our pump capacity."
This intense demand allowed the company to expand its non-GAAP operating margin to 32.2%, a 700 basis point increase from the prior quarter and a 2,140 basis point jump from the same period last year.
Analysts appeared to focus on the robust demand signals over the slight Q3 revenue miss. Following the report, several firms raised their price targets, including Citigroup to $1,100 and Loop Capital to $1,400, according to the source material. The average 12-month price target before the report stood at $812.71.
The results show Lumentum's profit potential as it prioritizes high-margin products for data centers. The stock's nearly 170% year-to-date gain ahead of the report, however, suggests investors had priced in near-perfection, leaving little room for even a minor shortfall.
The strong guidance suggests management is confident that demand from AI applications will continue to accelerate. Investors will watch the company's next earnings call for updates on its ability to expand capacity for its sold-out components and sustain its high-margin trajectory.
This article is for informational purposes only and does not constitute investment advice.
