Summary

• Lumentum is rated a strong buy as Wall Street underestimates the longevity and margin potential of its InP EMLs at the 3.2T node.
• LITE’s shift to a foundry model, underpinned by Nvidia’s $2B capacity lock-up, enables prepayments, inelastic pricing, and client-funded CapEx, supporting multiple expansions.
• Scale-Across pump lasers and intra-rack OCS drive significant long-term margin leverage, while vertical integration in transceivers is key to further margin accretion.
• Execution risks center on scaling 6-inch InP wafer yields and achieving higher internal integration rates for 1.6T transceivers; failure here could cap revenue and compress margins.

On Lumentum (LITE) stock, I tick a Strong Buy rating as Wall Street misprices the stock by prematurely writing off Indium Phosphide [InP] EMLs at the 3.2T node, in my opinion. Optical physics

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