San Jose, Calif., March 4, 2026, 14:51 (PST)
- Needham raised its price target on Lumentum to $850; shares were down about 2% in late trading
- The note pointed to Nvidia laser purchase commitments and planned capacity adds tied to co-packaged optics
- Nvidia has also struck a multiyear optics partnership with Lumentum, including a $2 billion investment
Needham & Company lifted its price target on Lumentum Holdings Inc to $850 on Wednesday, keeping a buy rating. Lumentum shares were down about 2% at $680.80 in late trading. 1
In a note, Needham said a new Nvidia purchase commitment for high-power lasers is incremental to “multi-hundred million dollars” of orders management discussed on its recent earnings call, with deliveries stretching from late 2026 through 2029. Needham said Lumentum expects to add indium phosphide (InP) laser capacity about 10% per quarter and the Nvidia commitment could support a fifth InP fabrication plant — potentially by repurposing an existing U.S. site — that could come online in early 2028 to meet co-packaged optics demand, which puts optical links closer to chips to cut power use. The firm added the commitment covers ultra-high-powered lasers, while assembly of full external laser source modules remains an opening for Lumentum and other suppliers, including Fabrinet. 2
Nvidia announced a nonexclusive, multiyear partnership with Lumentum on Monday, pairing a multibillion-dollar purchase commitment with a $2 billion investment aimed at expanding U.S. research and manufacturing. “AI has reinvented computing,” Nvidia CEO Jensen Huang said, while Lumentum CEO Michael Hurlston called the agreement a “shared commitment” to push advanced optics for next-generation data centers. 3
Photonics uses light, not electrical signals, to move data. In AI data centers, the shift matters because chips increasingly choke on the traffic between processors, switches and memory — and the links burn power doing it.
Nvidia has been pushing photonics as one path to faster, more efficient connections inside data centers, and it also agreed to invest $2 billion in Coherent, another optics supplier. Marvell Technology last year agreed to buy photonics startup Celestial AI for $3.25 billion, a deal that signaled bigger chip firms see optics as a competitive lever, not a side project. 4
But the financing and ramp-up come with conditions and execution risk. A regulatory filing showed Nvidia bought 2,876,415 shares of Lumentum Series A convertible preferred stock at $695.31 per share, with conversion into common stock tied to the expiration of a Hart-Scott-Rodino antitrust waiting period; Lumentum also flagged risks including regulatory actions, litigation and shifts in supply and demand. 5
Lumentum, based in San Jose, sells lasers and other optical components used in telecom networks and cloud hardware. A chunk of the bull case now rests on whether AI data center builds pull more of those parts into the chip package.
Co-packaged optics is still early. Standards are moving, manufacturing yields can surprise, and large customers have leverage when the bill gets big.
For Lumentum, the near-term tells are practical: securing a site, adding tools, and keeping output consistent as volumes rise. Any stumble — delays, quality slips, cost overruns — would show up fast in a supply chain that has alternatives.
Nvidia’s backing gives Lumentum a louder signal on demand, but it does not lock out competitors. The next test is whether that signal turns into durable shipments on the timeline the Street is now starting to price in.
