Why Lumentum Is Crushing It in the AI Revolution—And Outpacing Palantir's Expensive Valuation

While most investors have been fixated on Palantir Technologies’ impressive 166% surge in the past year, another AI-related company has quietly been dominating the space with a jaw-dropping 328% rally. Lumentum Holdings, the networking and optical components specialist, is crushing expectations in a way that deserves serious attention, especially ahead of its February 3 earnings announcement.

The contrast between these two AI powerhouses tells a compelling story: Palantir trades at a hefty 416 times trailing earnings, while Lumentum—growing at a faster pace—commands a far more reasonable valuation. For investors seeking exposure to artificial intelligence infrastructure without overpaying, Lumentum represents a significantly more attractive opportunity.

Why Lumentum Is Crushing Earnings Forecasts

Lumentum has beaten Wall Street expectations in four consecutive quarters, and this momentum shows no signs of slowing. The company is riding a wave of robust demand for its optical and photonic components—the critical infrastructure that powers high-speed data transmission across AI data centers.

In fiscal Q1 2026 (ended September 27), the results were stunning:

• Revenue jumped 58% to $337 million
• Non-GAAP operating margin expanded by an impressive 15.7 percentage points to 18.7%
• Adjusted earnings nearly sextupled to $1.10 per share

For fiscal Q2, management is guiding for $650 million in revenue at the midpoint—representing a 62% year-over-year increase. Adjusted earnings are projected to more than triple to $1.40 per share. These aren’t gradual improvements; this is explosive growth fueled by the relentless infrastructure demands of the AI era.

AI Infrastructure Dominance Driving the Rally

More than 60% of Lumentum’s revenue now comes from the cloud and AI infrastructure market, positioning the company at the epicenter of one of technology’s most transformative trends. Both hyperscalers and networking equipment manufacturers are voraciously consuming its components.

The tailwinds are structural. Moody’s estimates that major hyperscalers will invest $3 trillion in infrastructure over the next five years. Lumentum isn’t just participating in this boom—it’s a critical enabler of it. This massive addressable market virtually guarantees continued double-digit earnings growth, and analysts have become notably bullish on the company’s prospects.

The company’s focus on expanding manufacturing capacity to meet soaring demand further reinforces confidence that management will maintain an upbeat outlook when it reports earnings.

The Valuation Case: Trading at a Significant Discount

Yes, Lumentum’s 208 price-to-earnings ratio reflects its dramatic one-year rally. But here’s the critical insight: the forward earnings multiple sits at just 58—substantially lower than Palantir’s valuation despite Lumentum’s superior earnings growth trajectory.

Consider the comparison:

• Lumentum’s sales multiple of 13 dramatically undercuts Palantir’s equivalent
• Lumentum is growing faster but trading cheaper
• While Lumentum is hardware-focused and Palantir is software-driven (a key operational difference), both are competing for the same AI infrastructure dollar

Even under conservative assumptions, the math is compelling. If Lumentum’s valuation multiple eventually contracts to align with the broader U.S. tech sector’s average of 45, and the company achieves the $10.12 EPS that analysts are forecasting, the stock could reach $455—representing a 28% upside from current levels. That calculation assumes zero improvement in sentiment, which seems pessimistic given the company’s execution track record.

Should You Make Your Move Before Earnings?

The February 3 earnings report could serve as a significant catalyst. Strong results and forward guidance would almost certainly reignite the rally and potentially push the stock into new territory. Investors crushing on AI infrastructure plays have multiple reasons to pay attention to Lumentum before the market reacts to earnings.

The company has proven its ability to navigate explosive growth while maintaining operational discipline. Its competitive moat in optical components continues to strengthen as AI infrastructure spending accelerates. And unlike many hyped AI names, Lumentum is crushing profit margins while delivering the revenue growth to justify its gains.

This isn’t a speculative bet on AI hype—it’s exposure to a company selling essential picks and shovels to the infrastructure boom, at a valuation that remains far more reasonable than many overheated alternatives.