Lumentum's 1,500% Run and Nvidia's $2 Billion Deal: What Comes Next?

Key Points

• Lumentum surged by more than 1,400% as AI infrastructure demand drove momentum and led to its S&P 500 inclusion.
• A $2 billion partnership with NVIDIA positions the company at the center of next-gen optical networking.
• Despite strong catalysts, valuation, short interest, and capacity constraints suggest patience may be warranted.

Investors may not have heard much about Lumentum Holdings Inc. NASDAQ: LITE in the mainstream financial press in 2025, but that’s going to change. LITE is up more than 1,500% in the last 12 months, and two newsworthy catalysts will make the company hard to ignore as part of the ongoing artificial intelligence (AI) trade.

Founded in 2015 as a spinoff from JDS Uniphase, Lumentum makes optical and photonic products used in telecommunications, 3D sensing, and increasingly, data center infrastructure. The company spent years as a relatively quiet supplier to the tech industry. It was known inside the sector but rarely a headline name. That era appears to be over.

Lumentum Rhymes With Momentum

It’s just a coincidence that Lumentum rhymes with momentum. But that's what the stock was quietly building in 2025. That turned into a massive breakout in 2026, as LITE has climbed about 140% year to date.

Part of that growth came from the anticipation that Lumentum would be included in the S&P 500 index, a distinction that it announced on March 10. Being included in the index doesn’t change a stock’s valuation, though. And unlike the case of Palantir Technologies Inc. NASDAQ: PLTR, being included in the index didn't increase institutional ownership of LITE (over 94% of the stock’s float is already owned by institutions).

The more significant catalyst was the announcement of a partnership with NVIDIA NASDAQ: NVDA to accelerate innovation in advanced optics technologies.

NVIDIA will pay Lumentum $2 billion, which is more than the company’s entire revenue for its 2025 fiscal year.

Why NVIDIA Is Betting on Lumentum

Investors may be getting data center fatigue as reflected in many technology stocks that are plunging over concerns that the buildout may not match the expectation.

But Lumentum is part of the photonics market, which is forecasted to grow at a compound annual growth rate (CAGR) of 6.6% between now and 2030. Photonics is about connecting data center components via light, which can move signals faster and, perhaps more importantly, with less heat generation.

Copper is the current standard, and because it’s cheaper than optical equipment, it’s likely to remain the preferred solution. But there’s a copper shortage that has opened the door for photonics companies to enter the picture.

For NVIDIA, the partnership is less about necessity today and more about positioning for tomorrow. As AI clusters scale to hundreds of thousands of GPUs, the bandwidth and thermal demands of traditional copper interconnects become increasingly difficult to manage.

By locking in a deep relationship with one of the most capable optical component makers in the world, NVIDIA is effectively hedging against infrastructure constraints that could slow AI buildout. For Lumentum, the $2 billion commitment provides the capital to expand manufacturing capacity and accelerate R&D at a pace that would have been difficult to fund organically.

A Trend Reversal Worth Watching

While it’s true that being included in the S&P 500 won’t drastically change institutional investor interest, it may impact sentiment. In the past two quarters, institutions have been heavily selling LITE. That’s not a bet against the company’s business model, but an acknowledgment that the stock may have gotten ahead of itself.

But now that Lumentum has been added to the S&P 500, many funds must own LITE. That may not change the long-term outlook for the stock, but it could set a higher floor.

Traders May Want to Wait for a Pullback

The LITE chart clearly shows that investors bought LITE stock in advance of its debut in the S&P 500 index. The stock showed strong growth between March 10, the day the company’s inclusion was announced, and March 23, when it started trading as part of the index.

However, some of those gains were due to short covering. LITE stock carries short interest around 16%. That’s not egregiously high, but it’s elevated on a historic basis, and it was climbing as the stock went on its strong run in 2025. The strong move in LITE has also pushed the stock's valuation to lofty levels even for technology stocks. 

LITE stock may need a catalyst to move higher. Investors may have to wait for the company’s Q3 2026 earnings report scheduled for May 5. At that time, investors will want to hear positive news regarding manufacturing capacity, which was constrained in the prior quarter.

Retail investors may wonder if the stock's extraordinary run has already priced in the good news. The bull case says the NVIDIA partnership and S&P 500 inclusion represent the beginning of a longer re-rating.

However, given the constrained capacity, elevated short interest, and a stock that has already made an extraordinary move, patience may be the most underrated position right now. The May earnings report will offer the clearest read yet on whether Lumentum's fundamentals are catching up to its stock price.