Core Viewpoint - Lumentum Holdings has experienced a 9% decline in stock value in 2025, which is seen as unjustified due to the positive impact of artificial intelligence (AI) on its business growth [2][4]. Financial Performance - In fiscal Q3 2025, Lumentum's revenue rose by 16% year over year to $425 million, with non-GAAP net income nearly doubling to $0.57 per share [5]. - The cloud and networking segment contributed significantly, accounting for 86% of total revenue [5]. - Non-GAAP operating margin improved to almost 11%, up from a slightly negative margin in the previous year [5][6]. Growth Drivers - The increase in margins and earnings is attributed to better manufacturing utilization rates and a favorable product mix [6]. - Lumentum anticipates continued growth driven by AI, particularly in its externally modulated lasers (EML) used for high-speed data transmission [7][8]. - EML shipments reached a record last quarter, with expectations to double revenue from this product compared to June 2024 levels [9]. Future Projections - Lumentum forecasts revenue of $455 million for the current quarter, representing a 48% year-over-year increase, with non-GAAP earnings per share projected between $0.70 to $0.80 [10]. - Analysts predict an 88% increase in earnings for fiscal 2025, reaching $1.90 per share, with even stronger forecasts for subsequent years [11]. Valuation and Investment Potential - The stock has a 12-month median price target of $82, indicating an 8% potential increase from current levels [11]. - If Lumentum achieves earnings of $4.77 per share by fiscal 2027 and trades at 25 times earnings, the stock price could reach $120, suggesting a potential gain of 58% [13]. - Currently, Lumentum is trading at 19 times forward earnings, presenting an attractive valuation for investors [13].