Not Micron or SanDisk? Foreign Media: This AI Stock Could Surge 113% in the Next 3 Years

As artificial intelligence (AI) data centers continue to expand, not only are memory and storage chipmakers like Micron Technology (MU-US) and SanDisk (SNDKV-US) seeing their stock prices rise, but the importance of optical communications—a critical infrastructure—is also rapidly increasing.

According to The Motley Fool, AI computing requires massive amounts of data to be transferred at high speed between storage devices, processors, and accelerators. While faster memory and larger storage capacity can alleviate data supply bottlenecks, as AI data center scales continue to grow, data transmission itself is becoming a major bottleneck limiting the performance of GPUs and custom processors.

As a result, optical communication components are receiving heightened market attention. These components use optical signals to transmit large volumes of data quickly over long distances via fiber-optic cables.

Investment bank and brokerage Rosenblatt Securities estimates that between 2025 and 2030, the production capacity of optical communication component manufacturers could increase twelvefold.

However, even with significant capacity expansion, it may still be insufficient to meet the rapidly growing demand for optical components. Rosenblatt predicts that despite substantial output increases by the end of this decade, supply could still lag behind demand by 50% in 2030.

This supply-demand gap is already reflected in the financial results of Lumentum (LITE-US), a supplier of optical and photonic components. On August 11, the company reported its fiscal 2026 fourth-quarter results, ending June 27, with revenue rising 109% year-on-year to just over $1 billion, surpassing the market expectation of $988 million.

Profitability was also strong. Lumentum’s non-GAAP operating margin for Q4 increased 21.6 percentage points year-on-year to 36.6%, and adjusted earnings per share (EPS) reached $3.23—nearly 3.7 times higher than the previous year and above the expected $2.97.

The company’s outlook for the current quarter is even stronger, with revenue projected to grow 134% year-on-year to $1.25 billion, and adjusted EPS expected to surge from $1.10 a year ago to $4.20, accelerating profit growth further.

Analysts note that from an industry demand perspective, the optical communications market still has significant room for growth. Goldman Sachs expects the global optical communications network market revenue to reach $154 billion by 2028, nine times its current size.

For Lumentum, rapid market expansion could drive sustained revenue growth, while tight supply of optical components may further support the company’s margins and profitability.

Despite a significant rise this year, Lumentum’s stock price still has room to surge

So far in 2026, Lumentum’s stock has surged over 150%, delivering strong performance. However, given the company’s robust earnings growth potential, analysts believe this AI-related stock still has room for further upside.

Lumentum’s non-GAAP EPS for fiscal 2026 increased more than fourfold year-on-year to $8.67. Forecasts suggest the company’s earnings will continue to grow strongly over the next three years.

Specifically, Lumentum’s earnings are projected to increase 5.3 times from its fiscal 2026 level within just three years, translating to a compound annual growth rate (CAGR) of 74%. This growth rate far exceeds the expected S&P 500 earnings growth rates of 30% and 14% for the next two years.

Currently, Lumentum’s forward P/E ratio is around 42x, roughly double that of the S&P 500. However, given the company’s outstanding earnings growth prospects, this valuation remains justified.

Assuming Lumentum maintains a 43x P/E ratio in three years and EPS reaches the market consensus estimate of $45.98, the stock price could climb to $1,977. This implies a potential 113% gain over the next three years.

Analysts believe Lumentum remains an attractive investment for investors seeking growth stocks. With favorable supply-demand dynamics in the optical communications component market expected to continue, the company’s stock could rise significantly further.