Evercore ISI has maintained an "Outperform" rating and a $1,100 price target on optical communications company Lumentum Holdings Inc. (NASDAQ: LITE).

This follows comments from Lumentum CEO Michael Hurlston, who said the company's optical components for AI servers are sold out through early 2029. For some products, Lumentum can only meet about 30% of customer demand before 2027, while other products can only satisfy roughly 70% of demand before 2028. Customers have even begun locking in orders for 2030.

Evercore believes demand in the AI optical interconnect market remains strong, and the main factors currently limiting Lumentum's growth are capacity expansion and delivery speed. Over the past 12 months, Lumentum's revenue grew 83% year over year, and its share price has risen about 556% cumulatively.

AI server optics orders stretch to 2029, customers begin securing 2030 capacity

Lumentum CEO Michael Hurlston recently said that as AI data centers continue to expand in scale, demand for the company's optical components has surged, and existing capacity can no longer keep up with customer orders. Currently, Lumentum's optical components for AI servers are sold out through early 2029, extending beyond the previously disclosed 2028 timeline.

Looking at supply and demand for different products, Hurlston said the company cannot meet about 70% of market demand for some products before 2027, while about 30% of demand for other products remains unmet before 2028. At the same time, customers have started locking in product orders for 2030 in advance, reflecting the long-term procurement needs of large AI infrastructure projects for optical components.

Optical components are a key part of high-speed interconnect systems in AI servers and data centers, using optical signals to transmit data between servers, switches and other computing devices. As AI models grow in scale and the number of computing clusters increases, demand for high-speed optical interconnect technology in data centers continues to rise. Lumentum's 83% revenue growth over the past 12 months shows that AI-related demand is driving rapid business expansion.

Expansion cycle runs three to five years, existing capacity becomes the main growth bottleneck

Despite strong order demand, Lumentum still faces the problem of long capacity expansion cycles in semiconductor and optical component manufacturing. For companies like Lumentum, building new production facilities typically takes three to five years, involving plant construction, equipment installation, process validation and capacity ramp-up. As a result, even if customers are willing to sign long-term orders in advance, the company cannot significantly increase supply in a short period.

Lumentum previously estimated that shipments of its electro-absorption modulated lasers (EMLs) would grow more than 50% year over year in the quarter ending December 2026. EMLs are important light source components for high-speed optical communications systems, mainly used in data transmission scenarios requiring high speed, long distance and high signal quality.

To meet growing customer demand, Lumentum is expanding capacity at its two indium phosphide (InP) wafer fabrication plants in Japan. In addition, the company's production facility in Greensboro, North Carolina, is scheduled to begin contributing its first revenue in early 2028 and gradually increase output from 2028 to 2029. However, since existing orders already stretch to 2029, whether the new capacity can come online as planned will directly affect the pace at which the company converts revenue in the coming years.

CEO considers acquisitions over the next year to expand product line

In addition to expanding existing manufacturing capacity, Lumentum is also considering acquisitions to further broaden its product portfolio. Hurlston said the company may need to make acquisitions if it wants to add new product capabilities, and hopes to add relevant technology or businesses within the next year. This plan reflects Lumentum's efforts to expand its business scope in the AI optical communications supply chain to meet customer demand for more types of optical components and related technologies.

Evercore ISI analyst Amit Daryanani believes management's latest remarks further support the bank's view on the long-term growth of the AI optical components market. He pointed out that the key market discussion has now shifted to how quickly Lumentum can convert order demand into actual product deliveries. This means the company's future performance will depend more on capacity construction, manufacturing efficiency and supply chain execution.

Multiple investment banks bullish on optical interconnect demand, Nvidia procurement growth in focus

Recently, several Wall Street investment banks have expressed positive views on Lumentum's business prospects. Stifel raised its price target on the company to $1,232 and maintained a "Buy" rating, mainly due to continued growth in demand for lasers and AI networking components, especially a notable increase in procurement demand from Nvidia. Previously, after an investor meeting, Stifel also reiterated that Lumentum's product demand continues to exceed supply capacity, arguing that AI infrastructure construction remains constrained by insufficient supply of key components.

Jefferies listed Lumentum as one of the companies to watch at the OCP Global Summit, focusing on its business positioning in the transition to 1.6T high-speed optical communications technology and 800-volt direct current power architecture. As the number of computing devices within AI data centers increases, optical interconnect speeds are gradually moving toward higher standards such as 1.6T. At the same time, large AI clusters are placing higher demands on high-speed interconnect and data transmission efficiency between devices, creating new growth opportunities for related optical component suppliers.

However, Lumentum's share price has already risen about 556% over the past year, and the market already has high expectations for future growth. As of the time described in the report, the stock was priced at about $1,119, close to its 52-week high of $1,137. Evercore's maintained $1,100 target price is slightly below that share price, reflecting that while the bank is optimistic about the company's growth prospects, it has not further raised its valuation expectations.

For Lumentum, demand for AI server optical components has already extended to 2029 and even 2030. The key to future growth will be whether it can expand capacity in time, increase delivery scale and convert long-term orders into actual revenue.