Shares of Lumentum sank on Monday as artificial-intelligence trade stocks broadly came under pressure. The optical-networking company, however, may be in line for a major boost from an AI deal that could be announced ahead of schedule.
Lumentum stock dropped 6% to $814.91 on Monday and was one of the worst performing stocks in the S&P 500. Fellow optical-networking stock Coherent also declined 6.8%, while the tech-heavy Nasdaq Composite was down 0.7%.
Lumentum shares have lost some of the shine that sent them to a record closing high of $1,053.09 on May 11. The stock is down 23% since then, although it is still up more than 110% this year as optical technologies, which connect infrastructure within and between data centers, have become a crucial part of the AI boom.
Shares have also surged 560% over the past 12 months.
Even with Lumentum stock falling Monday, better times may be ahead, according to Morgan Stanley analyst Meta Marshall.
Marshall on Monday reaffirmed her Equal-Weight rating on Lumentum with a price target of $1,000.
The analyst, after hosting Lumentum's Head of Investor Relations Kathy Ta, wrote the company noted it "could sign a deal in the 'coming months,' likely sooner than indicated" on the fourth-quarter earnings call.
In March, Nvidia announced it was investing $2 billion each in both Lumentum and Coherent, along with multibillion-dollar purchase commitments with the two companies.
Demand, overall, continues to be robust for Lumentum, according to Morgan Stanley.
Leading the way is the company's co-packaged optics, which refers to optical transceivers in the same packaging as AI chips, and near-packaged optics, which places the transceivers one piece of hardware away.
"Echoing what we heard on earnings, LITE spoke to upside they are seeing in demand across co-packaged optics and optical circuit switching," Marshall wrote.
For optical circuit switching, Lumentum told Morgan Stanley that its "lead customer continues to upsize orders," according to Marshall.
A sooner-than-expected deal could be just what investors need to feel comfortable with Lumentum's growth opportunities. But in this market, earnings this week from Nvidia and Marvell Technology might also do the trick.