Mizuho Says This 1 Lesser-Known Chip Stock Is a Top Buy for 2026

Industry Outlook - The semiconductor industry is adjusting expectations for 2026 following a significant rally in 2025, where the PHLX Semiconductor Index increased by over 40% [1] - Mizuho's 2026 outlook report indicates that while the easy money has been made, there are still investment opportunities beyond the well-known industry leaders [1] Investment Focus - Mizuho continues to support established companies like Nvidia (NVDA) and Broadcom (AVGO), while also highlighting Lumentum (LITE) as a less crowded investment opportunity benefiting from industry trends [2] - Hyperscalers' capital expenditures are projected to rise by 32% year-over-year to $540 billion in 2026, which will positively impact sectors such as optical interconnects and photonics, where Lumentum operates [2] Company Profile: Lumentum - Lumentum is an optical and photonics specialist based in San Jose, California, providing essential components for data center interconnects and cloud connectivity, which are increasingly important due to AI processing expansion [3] - The company has a market capitalization of approximately $24 billion, positioning it as a noteworthy player that is often overlooked compared to larger semiconductor firms [3] Stock Performance - Lumentum's stock has shown dynamic performance, currently trading around $350, with historical fluctuations between $46 and $400, reflecting the cyclical nature of the optical market and evolving views on AI infrastructure costs [4] - Despite the S&P 500's limited upside, market sentiment can change significantly as network capacity becomes constrained [4] Valuation Metrics - Lumentum's stock is considered highly valued based on traditional metrics, with a forward price-to-earnings ratio of 89 and a price-to-sales ratio of 15 [5] - The critical factor for market participants is whether the growth narrative driven by optics and AI architecture can lead to a revaluation in the optics sector, rather than merely a contraction in multiples due to widespread AI adoption [5]