Nvidia-backed optical component maker Lumentum Holdings Inc. (LITE) is facing a massive capacity gap 鈥?its CEO says the company's products are fully sold out through early 2029, with surging AI data center demand leaving it struggling to keep up.
Lumentum Chief Executive Officer Michael Hurlston said in an interview with Bloomberg in Tokyo on Friday that roughly 70% of demand for some products cannot be met next year, while other products still face a 30% shortfall through 2028. Just half a year ago, he had said the company's capacity was expected to sell out by 2028 鈥?now that timeline has moved forward by nearly a year. "We are completely sold out, and we don't see an end," Hurlston told Bloomberg.
The tight supply situation has direct implications for related tech stocks and the investment thesis around AI infrastructure. Analysts on average expect Lumentum's sales to more than double this year.
Capacity Expansion Cannot Keep Pace with Demand
To cope with runaway orders, Lumentum has over the past two years increased capacity at its key factory in the Tokyo metropolitan area to 12 times the original level, and plans to invest at least $350 million in that plant and adjacent facilities combined. The company's Caswell facility in the UK has also completed expansion.
However, building optical component capacity is not something that happens overnight. Hurlston noted that for companies like Lumentum, building new production capacity takes three to five years. To share the risk of capital expenditure, hyperscale cloud companies have committed to providing support. "These hyperscalers are willing to put money into this," he said.
On product line expansion, Hurlston said the company may need to strengthen its existing capabilities through acquisitions. "I think over the next year or so, we want to add new product capabilities on top of what we have," he said.
The Logic Behind Nvidia's Investment
The core product Lumentum supplies is indium phosphide devices, a key material for enabling high-speed cloud computing and data transmission. Earlier this year, Nvidia injected $2 billion each into Lumentum and rival Coherent Corp., underscoring the strategic importance that leading AI chip makers place on the optical interconnect supply chain.
Silicon photonics technology is seen as an important direction for next-generation data center interconnect 鈥?using light rather than copper cables to transmit data, supporting higher transmission speeds for AI hardware while also reducing system heat dissipation pressure and energy consumption. Lumentum acquired some related technology through its 2018 acquisition of Oclaro Inc., which inherited Hitachi's optical research legacy, and its Sagamihara factory is now one of the world's most advanced indium phosphide device production bases.