Lumentum (LITE) Citi’s 2026 Global TMT Conference summary

AI infrastructure and optical networking trends

• AI demand is outpacing supply, with no signs of slowing for at least several years, driving unprecedented requirements for optical connectivity and bandwidth in data centers and networks.

• Each new generation of GPUs/TPUs increases bandwidth needs, pushing the shift from copper to optical interconnects due to physical limitations of copper.

• Scale-out and scale-up optical bandwidth requirements are growing exponentially, with scale-up expected to be 3–4x above scale-out by the second half of 2027, and further 10x increases as scale-up goes fully optical.

• The supply-demand gap for lasers and optical components is expected to persist through at least 2028, with laser supply not catching up to demand.

• Pricing for optical components remains strong due to persistent shortages, with allocation often based on profitability and expedited fees.

Product and technology developments

• CPO (co-packaged optics) and NPO (near-packaged optics) demand is intensifying, with both technologies expected to split the market 50/50 for optical scale-up by 2028.

• High-power external light source lasers are becoming the standard for both CPO and NPO, with most of the market moving toward 120–200 mW lasers for reliability and performance.

• Three major manufacturing ramps are planned: San Jose (ongoing through 2027), UK (starting Q2 2027), and Greensboro (starting mid-2028), all adding capacity without sacrificing existing product lines.

• ELS (external light source) wins are expected to grow, with initial shipments in the second half of 2027 and a larger share anticipated in NPO applications.

• 100G EML lasers remain the workhorse for transceivers, with 200G ramping; competition is limited, and pricing remains favorable.

Market outlook and financial guidance

• Fiscal 2028 EPS guidance was raised to $40, driven by increased OCS (optical circuit switch) opportunities, especially with the largest customer, and expected to layer in linearly through fiscal 2028.

• OCS total addressable market (TAM) is expected to exceed the previously stated $8 billion by 2028–2029, due to new applications like dynamic partitioning and resiliency networks.

• CW laser yields and margins have improved significantly, approaching those of EMLs, reducing previous hesitance to expand CW laser output.

• Scale-across and pump laser business is experiencing strong growth, with a 4x volume multiplier expected over the next five quarters and long-term agreements with major network equipment manufacturers.

• The company is positioned across all major optical scaling vectors (across, out, up, in), aiming to be the technology of choice as AI and optical demand intensifies.