Lumentum was upgraded to a Zacks Rank #1 (Strong Buy) following a series of stronger-than-expected quarterly results and upbeat guidance. Analysts cited the company’s accelerating adoption of optical circuit switches (OCS) and co-packaged optics (CPO) as key growth drivers. The upgrade follows three consecutive quarters of revenue growth exceeding 50% year-over-year and underscores growing confidence in Lumentum’s ability to capture a larger share of the AI and cloud datacenter market.

In the second quarter of fiscal 2026, Lumentum reported non-GAAP net income of $143.9 million, or $1.67 per diluted share, compared with $30.0 million, or $0.42 per diluted share, in the prior-year period. Revenues rose 65.5% year-over-year to $665.5 million, with components sales up 68.3% and systems revenue growing 60.1%. GAAP gross margin expanded by 1,130 basis points to 36.1%, while non-GAAP operating margin climbed 1,730 basis points to 25.2%. The company ended the quarter with $1.155 billion in cash and equivalents, up $33.5 million sequentially.

Lumentum’s backlog for OCS products has surpassed $400 million, driven by large orders from hyperscale cloud customers. In CPO, the company secured an incremental multi-hundred-million-dollar order deliverable in the first half of calendar 2027. For the third quarter of fiscal 2026, management forecasts revenue between $780 million and $830 million, non-GAAP operating margin of 30.0%–31.0%, and non-GAAP EPS of $2.15–$2.35. These targets imply year-over-year top-line growth exceeding 85% and further margin expansion as scale benefits accrue.