Prediction: This Could Be the Best-Performing AI Chip Stock of 2026

Core Insights - The networking company is experiencing significant earnings growth driven by demand for artificial intelligence (AI) infrastructure, with capital expenditures from the top four U.S. hyperscalers expected to reach $700 billion in 2026, a substantial increase from $394 billion in 2025 [1] Company Performance - Lumentum reported a 66% year-over-year increase in revenue to $666 million for fiscal Q2 2026, surpassing Wall Street's estimate of $652 million [5] - Non-GAAP earnings for Lumentum jumped nearly 4x year-over-year to $1.67 per share, exceeding the consensus expectation of $1.41 per share [5] - The company's stock has already increased by 56% in 2026, positioning it as a potential top performer in the AI chip sector [3] Market Position and Growth Drivers - Lumentum is recognized as a foundational engine of the AI revolution, with its technology powering virtually every AI network through partnerships with hyperscalers and network equipment manufacturers [7] - The company has a backlog exceeding $400 million for optical circuit switches, which are essential for high-speed data transmission in data centers [8] - Lumentum has secured a multi-hundred-million-dollar contract in co-packaged optics, enhancing its role in custom AI processors [8] Capacity Expansion and Future Outlook - Lumentum is aggressively expanding its capacity, having achieved over half of its targeted 40% capacity improvement in the previous quarter [9] - The company plans to bring new capacity online at its plants in the U.K. and Japan later this year [9] - Management anticipates an 85% year-over-year revenue increase in the current quarter to $805 million, with adjusted earnings forecasted at $2.25 per share, nearly 4x the earnings from the same period last year [10] - Analysts project a 263% increase in Lumentum's earnings for the current fiscal year to $7.47 per share, with continued growth expected in the following years [10]