The AI Supercycle Has a New Bottleneck. 1 Growth Stock Is Positioned to Solve It.

When most investors think of the artificial intelligence (AI) market, they often focus on leading chipmakers like Nvidia (NASDAQ: NVDA) or hyperscalers like Microsoft. However, those AI leaders can't keep expanding without companies like Lumentum (NASDAQ: LITE) providing the optical equipment to transmit that data at blazing speeds.

Over the past 12 months, Lumentum's stock has surged nearly 1,000% as more hyperscalers ramped up networking spending to break the bottlenecks for demanding AI applications. That spending spree transformed Lumentum from a struggling supplier of VSCEL chips for Apple's Face ID features into one of the market's hottest AI stocks. It also secured a $2 billion investment and a strategic partnership from Nvidia in early March.

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How fast is Lumentum growing?

Nvidia's GPUs can quickly train AI algorithms, but older optical equipment can throttle those data transfers. Many data centers still use copper-based connections, which degrade signal quality, consume significant energy, and have reached their bandwidth limits.

Lumentum's optical networking equipment -- including lasers, optical receivers, photonic chips, and optical circuit switches -- addresses those challenges with clearer, faster, and more power-efficient transmissions. That means data centers can spend more time processing data on Nvidia's GPUs instead of waiting to transmit it.

From 2022 to 2025, Lumentum's annual revenue declined from $1.7 billion to $1.6 billion as its sales to Apple declined, U.S. regulators barred it from selling its chips to Huawei, and its top telecom customers unexpectedly reduced their orders to right-size their inventories. Its factories weren't fully utilized, and its investments in cloud, data centers, and optical networking equipment hadn't paid off. Inflation, rising rates, tariffs, and other macro headwinds exacerbated that pressure. Lumentum also racked up steep losses in 2023 and 2024 as it grappled with those challenges, but it finally squeezed out a slim profit in 2025 as its shift toward AI optics started to bear fruit.

But from 2025 to 2028, analysts expect its revenue to surge at a 58% CAGR to $6.4 billion as the aforementioned AI tailwinds kick in. They expect its EPS to jump from $0.37 to $16.48.

Should you still buy Lumentum's stock today?

At $688 per share and a market cap of $46.8 billion, Lumentum trades at 147 times this year's earnings and 16 times this year's sales. Those valuations aren't cheap, but they haven't yet reached meme-stock levels. Therefore, it could still be worth accumulating if you expect the AI market's demand for its bottleneck-breaking optical components to keep skyrocketing.

Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Apple, Lumentum, Microsoft, and Nvidia and is short shares of Apple. The Motley Fool has a disclosure policy.