Lumentum Just Joined the S&P 500: What Could Keep the Huge Rally Going and What Could End It

By Trey Thoelcke Published Mar 25, 8:10AM EDT

Quick Read

Lumentum (LITE) posted Q2 revenue of $665.5M, up 65.5% year-over-year, with non-GAAP operating margin expanding to 25.2%, while management guided Q3 revenue to $780M-$830M (85%+ growth) and optical circuit switches backlog exceeded $400M.
Lumentum’s 989% one-year gain and S&P 500 inclusion created structural buying pressure from passive funds, but the 212x trailing P/E and insider selling raise concerns about whether the stock’s run-up has priced in all growth, leaving minimal room for execution missteps.

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Lumentum Just Joined the S&P 500: What Could Keep the Huge Rally Going and What Could End It — © 24/7 Wall St.

Lumentum (NASDAQ: LITE | LITE Price Prediction) closed at $801.99 on March 24, 2026, capping a 989.2% one-year gain. The company was added to the S&P 500 on March 23, 2026, and MarketWatch called it the second-best performer among S&P 500 components over the past year. The question now is whether the fundamentals justify staying in, or whether the run has priced in everything worth pricing.

The Bull Case

The operating numbers are hard to dismiss. Revenue grew 65.5% year-over-year in Q2 FY26 to $665.5 million, while non-GAAP operating margin expanded 1,730 basis points to 25.2%. Management guided Q3 FY26 revenue to $780 million to $830 million, implying more than 85% year-over-year growth, with non-GAAP EPS of $2.15 to $2.35 and operating margins of 30% to 31%.

CEO Michael Hurlston put the demand picture plainly on the Q2 earnings call:

We are only at the starting line for two substantial opportunities: optical circuit switches (OCS) and co-packaged optics (CPO). In OCS, we are scaling rapidly to meet extraordinary customer demand that has already driven our backlog well beyond $400 million. In CPO, we received an incremental multi-hundred-million-dollar order, deliverable in first half calendar 2027.

S&P 500 inclusion is not a one-day event. Passive index funds must hold Lumentum continuously, creating structural buying pressure. Institutional ownership sits at 94.05%, with Assenagon, AllianceBernstein, and Avala Global all increasing positions recently. Analyst sentiment is tilted heavily positive: four Strong Buy ratings, 14 Buy ratings, five Holds, and zero Sells. BNP Paribas has a street-high $1,040 price target, while Rosenblatt and Craig-Hallum each have a $900 target.

The Bear Case

The stock trades at a trailing P/E of 212x and a price-to-sales ratio of 24.7x. The analyst consensus target is $708.57, over 11% below the current price. The 24/7 model flags a base target of $667.85 with a bear scenario of $479.82.

The balance sheet carries risk. Total liabilities reached $3.958 billion against $4.805 billion in total assets in Q2 FY26, including $3.24 billion in the current portion of long-term debt. Insiders have been selling heavily. CEO Hurlston disposed of 20,169 shares at $551.99 on February 7, and CFO Wajid Ali sold multiple tranches in late February at prices ranging from $677 to $699.

On March 17, Nvidia CEO Jensen Huang reaffirmed continued copper use alongside optical solutions, a reminder that the full optical transition is not imminent. And several large holders are trimming: Atreides Management cut its stake by 62.6%, Penn Capital by 96.5%, and Jain Global by 49.3%.

After a nearly tenfold move in 12 months, the stock needs continued flawless execution to justify its valuation. The backlog is real, the growth is real, and the market opportunity is real. But the margin for error is essentially zero.

About the Author Trey Thoelcke →

Trey has been an editor and author at 24/7 Wall St. for more than a decade, where he has published thousands of articles analyzing corporate earnings, dividend stocks, short interest, insider buying, private equity, and market trends. His comprehensive coverage spans the full spectrum of financial markets, from blue-chip stalwarts to emerging growth companies.

Beyond 24/7 Wall St., Trey has created and edited financial content for Benzinga and AOL's BloggingStocks, contributing additional hundreds of articles to the investment community. He previously oversaw the 24/7 Climate Insights site, managing editorial operations and content strategy, and currently oversees and creates content for My Investing News.

Trey's editorial expertise extends across multiple publishing environments. He served as production editor at Dearborn Financial Publishing and development editor at Kaplan, where he helped shape financial education materials. Earlier in his career, he worked as a writer-producer at SVE. His freelance editing portfolio includes work for prestigious clients such as Sage Publications, Rand McNally, the Institute for Supply Management, the American Library Association, Eggplant Literary Productions, and Spiegel.

Outside of financial journalism, Trey writes fiction and has been an active member of the writing community for years, overseeing a long-running critique group and moderating workshop sessions at regional conventions. He lives with his family in an old house in the Midwest.