Alphabet's latest earnings report has reignited investor interest in optical networking and data center component suppliers such as Lumentum Holdings, as the tech giant's rising capital expenditure underscores the ongoing strength of artificial intelligence infrastructure investment.
While some market participants focused on Alphabet's higher capex plans, analysts at Stifel viewed the results as a confirmation that AI-related spending remains on an upward trajectory. “The first hyperscaler print this earnings cycle reinforces our view that the AI data center buildout is not decelerating,” the Stifel team wrote following Alphabet's quarterly release.
Alphabet’s continued investment is seen as a positive signal for companies providing interconnects, optics, and networking hardware used in AI data centers. The company is among several hyperscalers—including Microsoft and Amazon—that are aggressively expanding their AI infrastructure.
Stifel identified Lumentum, Celestica, and Coherent as the hardware firms with the greatest exposure to Alphabet’s spending. The brokerage also pointed to Marvell Technology as a key supplier of optical digital signal processors, while Semtech was noted for its growing supply of active copper cable to Alphabet. Monolithic Power Systems was highlighted for its power-related product exposure.
“This initial read is overwhelmingly positive for the space and should skew positive for the CapEx spend insights from the other hyperscaler reports to follow,” the analysts added. They suggested investors consider these names ahead of earnings from other hyperscalers, with Microsoft reporting on July 29 and Amazon on July 30.
Separately, Barclays upgraded Lumentum to Overweight, citing strong demand for its optical and laser components used in AI data centers. The firm assigned a $1,000 price target, pointing to expectations ahead of Lumentum’s fiscal fourth-quarter earnings in August. Lumentum shares rose 1.8% on Thursday.
Lumentum has increasingly positioned itself as a beneficiary of the AI infrastructure boom through acquisitions that expanded its optical and photonic technology portfolio. According to Seeking Alpha analysts, the company has diversified beyond legacy telecom markets via deals including Oclaro, NeoPhotonics, IPG Photonics, and Cloud Light Technology. These moves have broadened Lumentum’s exposure to cloud computing, AI, machine learning, and high-speed optical networking.
The company’s Cloud & Networking segment accounted for 85.7% of fiscal 2025 revenue, up from 58.9% in fiscal 2022 under its previous reporting structure. Analysts also highlighted long-term growth drivers such as Optical Circuit Switches, expanding optical scale-out deployments, and the anticipated shift toward optical scale-up architectures beginning in 2028.
Lumentum reported fiscal third-quarter 2026 revenue of $808.4 million, up 90.1% year over year, supported by accelerating laser sales tied to AI infrastructure demand. Looking ahead, broader adoption of Co-Packaged Optics for application-specific integrated circuits could drive additional demand for Lumentum’s next-generation ultra-high-power lasers starting in 2027. However, the company faces execution risks including elevated debt levels, uneven cash generation, and shortages of critical components that could affect capacity expansion.
For broader context on the AI infrastructure spending landscape, see Nvidia Drops 2.2% as Alphabet's $205B Capex Boost Fuels Rotation to Memory Stocks and Dow Adds 230 Points as Chip Stocks Rally Ahead of Big Tech Earnings Reports.
This article is for informational purposes only and does not constitute financial advice.
