Investors are currently presented with a compelling opportunity to acquire shares in a rapidly expanding AI company at an attractive valuation. Palantir Technologies has gained significant traction in the market in recent years, with its stock soaring by 160% over the past year. This surge reflects a growing demand for artificial intelligence (AI) software, as investors eagerly seek to capitalize on this trend.
However, in recent times, Palantir’s shares have faced some pressure. This dip isn’t surprising, given that the remarkable rally over the past three years has driven its valuation to quite high levels. Interestingly, there is another AI company that has outperformed Palantir, with its stock appreciating a staggering 197% in the same period. Notably, this company is trading at a significantly cheaper valuation, despite exhibiting exceptional growth. Let’s explore this company further to understand why it could be a strong investment option.
High Demand for Data Transmission Fuels Growth
In the realm of AI, data centers that manage workloads require the swift transfer of vast amounts of data to ensure that large language models (LLMs) and inference applications function efficiently. Even the fastest graphics processing unit (GPU) can be hindered by slow network speeds. This is where Lumentum Holdings (LITE) comes into play, providing optical and photonic products essential for communication networks and data centers.
Lumentum’s laser components and optical transceivers are witnessing robust demand, driven by their capacity to enhance data center connectivity. During a recent earnings call, CEO Michael Hurlston highlighted that over 60% of the company’s total revenue now stems from cloud and AI infrastructure. This growth is propelled by both hyperscale customers and network equipment manufacturers integrating Lumentum’s components into their solutions.
Our growth is powered by AI demand spanning our laser chips and optical transceivers inside data centers, as well as the interconnected long-haul networks that link them. In fact, we estimate that over 60% of our total company revenue now comes from cloud and AI infrastructure, driven both directly by hyperscale customers and indirectly through network equipment and optical transceiver manufacturers that embed Lumentum components in their solutions.
In its fiscal 2026 first-quarter results released on November 4, Lumentum reported a year-over-year revenue increase of 58%, totaling $534 million. Even more impressively, its non-GAAP earnings rose over sixfold compared to the previous year, reaching $1.10 per share. Management attributed this substantial bottom-line growth to improved manufacturing utilization rates and a favorable product mix, driven by heightened demand from data centers. Consequently, the company’s non-GAAP operating margin surged nearly 16 percentage points year-over-year to 18.7%.
Looking ahead, Lumentum is optimistic, forecasting earnings of $1.40 per share for the current quarter on revenue of $650 million. These projections surpass Wall Street’s expectations and indicate significant growth compared to the $402 million in revenue and non-GAAP earnings of $0.42 per share from the same period last year. The company’s promising outlook is further underscored by projections that the market for photonic components could potentially increase by 8.6 times over the next decade, with expected annual revenue of $54 billion by 2035, driven primarily by the AI sector.
Valuation and Growth Prospects Make Lumentum a Strong Investment
Lumentum’s stock is currently trading at 39 times forward earnings, even after remarkable growth in the past year. Its price-to-sales ratio stands at 9, aligning with the average for the U.S. technology sector. In contrast, Palantir’s sales multiple is 114, with a forward price-to-earnings ratio of 175. Additionally, Lumentum’s earnings growth outpaced Palantir’s in the previous quarter, and analysts expect it to maintain a solid growth trajectory.
Assuming Lumentum achieves earnings of $9.36 per share within the next three years while maintaining its earnings multiple, the stock price could rise to $365, reflecting a potential gain of 51% from current levels. Given the expansive market opportunities Lumentum is positioned to leverage, the company could very well exceed these estimates, making it an enticing option for investors seeking to benefit from the booming AI industry.
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