Investment bank Needham has raised its price target for telecom equipment company Lumentum (LITE.US), citing "persistently strong" laser demand. Analyst Ryan Koontz increased the target from $235 to $290 while reiterating a "Buy" rating, stating that the company is steadily becoming a "key supplier" in the AI optics race. The stock surged 17.13% on Monday.

In a client note, Koontz wrote: "Lumentum is confident that its aggressive capacity expansion investments will maintain its position as the largest commercial laser supplier to the cloud industry. Global shortages persist for its indium phosphide, electro-absorption modulated lasers (EMLs), and continuous-wave products, with the supply-demand gap expected to widen further by 2026 compared to 2025. Indium phosphide manufacturing expertise is highly specialized globally, with few scaled suppliers. Importantly, Lumentum’s capacity is versatile, allowing it to adapt seamlessly to demand for EMLs or silicon photonics transceivers, which appear to be gaining market share over VCSEL designs."

Koontz added: "Within its data communications segment, EML chip production for the global transceiver market remains constrained by capacity limits, a situation likely to persist through late 2025. Management cited industry projections indicating a >30% CAGR for high-speed transceivers from 2023 to 2028. Its acquired Cloud Light transceiver products are now shipping to all three hyperscale customers, with Lumentum planning eventual integration of its in-house continuous-wave lasers."

He concluded: "We expect Lumentum to deliver stronger revenue, margins, earnings, and cash flow as key business segments gain traction, supporting further stock upside."