Despite a market-wide sell-off impacting artificial intelligence (AI) stocks on August 18, two key optical component manufacturers, Lumentum and Coherent, demonstrated robust financial performances. The broader market saw investors liquidating high-valuation growth stocks amidst concerns over inflated prices and the sustainability of data-center demand. However, both Lumentum and Coherent reported impressive growth figures that challenge the prevailing market apprehension.
On the aforementioned Tuesday, Lumentum's stock experienced a 9.9% dip, closing at $873.31, while Coherent saw a 12.8% decline, settling at $306.43. These drops occurred without any adverse company-specific news. In fact, both firms had recently unveiled their latest earnings, which painted a picture of strong demand and significant operational achievements, directly contrasting the market's bearish sentiment.
Lumentum, a pivotal supplier of lasers and optical components for AI data centers, has been grappling with demand that outstrips its current production capabilities. The company's fiscal fourth-quarter revenue, which concluded on June 27, surged by an impressive 109% year-over-year, reaching $1.01 billion. Its full fiscal-year revenue also saw an 83% increase, totaling $3.01 billion. Looking ahead, management projects revenues for the current quarter to be between $1.225 billion and $1.275 billion, indicating a further 24% rise at the midpoint. CEO Michael Hurlston emphasized the company's central role in a significant industry transition, a claim strongly supported by the robust guidance. Furthermore, Lumentum's profitability is expanding even more rapidly than its sales, with a non-GAAP adjusted gross margin hitting 50.4% in the fourth quarter, an improvement from 46% for the entire fiscal year. Adjusted earnings per share reached $3.23, with projections for $4.05 to $4.35 in the current quarter alone. While a $7.2 billion GAAP net loss was reported for the quarter, it was attributed to a one-time, non-cash charge of $7.8 billion related to the conversion of convertible notes into stock, an accounting adjustment rather than an operational issue. Despite the recent stock decline, Lumentum's market capitalization of $78 billion still places its valuation at approximately 26 times its fiscal year 2026 revenue. However, its forward price-to-earnings ratio of about 40 times expected earnings for the upcoming fiscal year appears more favorable, especially given management's optimistic revenue guidance, which suggests annual sales well above the entire fiscal year 2026 forecast.
Coherent presents a more diversified portfolio, supplying optical transceivers, lasers, and related materials to data center, communications, and industrial sectors. Although its growth trajectory is not as steep as Lumentum's, it remains commendable. The fiscal fourth-quarter revenue for Coherent escalated by 34% year-over-year to a record $2.05 billion, marking a 13% sequential increase. Its full-year revenue grew by 23% to $7.12 billion. Notably, the data center and communications segment alone witnessed a 59% year-over-year growth, contributing $1.6 billion, or 79%, of the quarter's total sales. The company's margin recovery is particularly noteworthy, with the operating margin improving significantly to 12.4% from 0.4% in the previous year. Earnings per share turned positive, reaching $1.19 on a GAAP basis, a stark contrast to the loss reported a year prior. For the current quarter, management anticipates revenues between $2.2 billion and $2.4 billion, with adjusted earnings per share projected at $1.85 to $2.05, surpassing the recently reported $1.74. CEO Jim Anderson highlighted fiscal year 2026 as an exceptional period for Coherent, characterized by record revenue, substantial margin expansion, and a non-GAAP EPS growth rate that was more than double the revenue growth. The industrial segment of Coherent, however, showed a decline of 16% year-over-year, reaching $430.5 million. This segment's contraction counteracts some of the gains from the AI-driven parts of the business, explaining why Coherent trades at a lower premium. Its shares are valued at approximately 33 times expected earnings for the coming fiscal year and about 8 times fiscal year 2026 revenue, which is considerably lower than Lumentum's respective ratios of roughly 40 times and 26 times.
Both Lumentum and Coherent are crucial providers of components essential for the expanding AI infrastructure. Despite the recent market sell-off driven by concerns about AI demand, both companies have indicated continued growth and demand that outpaces their current supply. This suggests that the market's reaction might be an overcorrection, presenting an attractive entry point for investors.
