J.P. Morgan Says Coherent, Lumentum More Attractive After Optics Rally
1h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
coherentlumentum
Fazen Markets Editorial Desk
Collective editorial team · methodology
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J.P. Morgan upgraded shares of optical component makers Coherent and Lumentum Holdings, arguing the stocks have become more attractive for investors who missed the recent sector rally. The investment bank made the call on June 11, 2026, citing diminished fears over the adoption pace of co-packaged optics (CPO) technology. J.P. Morgan set a price target of $75 for Coherent, implying over 25% upside from its June 10 close. The firm sees Lumentum reaching $95, a potential 18% gain from recent levels.
The analyst call arrives as optical stocks have already surged. The iShares U.S. Tech-Optical Components ETF (IOPC) gained 42% year-to-date through June 10, significantly outperforming the Nasdaq 100's 15% rise. The last major re-rating for optical leaders occurred in late 2025, when Broadcom's 800G optical product cycle drove a 30% sector rally in a single quarter. The current catalyst is a dual-track demand surge. First, hyperscaler capital expenditure for artificial intelligence infrastructure is accelerating, with projections exceeding $200 billion for 2026. Second, a multi-quarter inventory correction in traditional telecom and datacom markets is concluding, setting the stage for a synchronized recovery.
Coherent stock closed at $59.80 on June 10. The new $75 target represents a 25.4% potential increase. Lumentum closed at $80.45, with the $95 target suggesting 18.1% upside. J.P. Morgan's analysis projects Coherent's earnings per share will reach $4.20 in fiscal 2027, a 40% jump from the $3.00 consensus for fiscal 2026. For Lumentum, the firm forecasts fiscal 2027 EPS of $6.50, up 30% from expected 2026 results. The broader Philadelphia Semiconductor Index (SOX) trades at a forward price-to-earnings ratio of 24x. Coherent and Lumentum trade at 20x and 19x forward earnings, respectively, indicating a relative discount. Before the upgrade, short interest in Coherent stood at 5.2% of float, while Lumentum's was 4.8%.
| Metric | Coherent (June 10) | Lumentum (June 10) |
|---|---|---|
| Closing Price | $59.80 | $80.45 |
| J.P. Morgan Price Target | $75.00 | $95.00 |
| Implied Upside | +25.4% | +18.1% |
The upgrade signals a rotation into late-cycle beneficiaries of AI buildouts. Direct suppliers of laser components and transceivers, like II-VI Incorporated and NeoPhotonics, often trade in sympathy and could see incremental buying. Semiconductor capital equipment firms like Applied Materials and Lam Research may see indirect benefits from increased optical chip manufacturing. A key counter-argument is that CPO adoption could still be delayed beyond 2027, capping the total addressable market for these firms' newest products. Current positioning shows hedge funds covering shorts in optical names while long-only institutions increase sector weightings. Flow data indicates net buying in the IOPC ETF for seven consecutive sessions, totaling over $400 million.
Coherent reports fiscal fourth-quarter earnings on August 5, 2026. Guidance for fiscal 2027 revenue growth, particularly in the silicon photonics segment, will validate the upgrade thesis. Lumentum's investor day, scheduled for September 15, 2026, will provide details on its CPO roadmap and capacity expansion plans. Key technical levels to monitor include Coherent's 200-day moving average at $55, which now acts as support, and Lumentum's 52-week high of $85, a breach of which could trigger further momentum buying. A break below $50 for Coherent or $75 for Lumentum would invalidate the bullish setup and suggest the rally is overextended.
Co-packaged optics is a next-generation architecture that moves optical engines closer to the AI processing chip inside a server. The technology aims to reduce power consumption and increase data transfer speeds between chips. Investors feared a rapid industry shift to CPO would make existing pluggable optical transceivers, a core product for Coherent and Lumentum, obsolete too quickly, destroying the value of current manufacturing assets and intellectual property portfolios.
J.P. Morgan issued a similar contrarian upgrade on the optical sector in October 2023, citing an end to the networking inventory glut. That call preceded a 60% rally in the IOPC ETF over the following nine months. The current upgrade is more focused on specific companies rather than the broad sector and is grounded in a new, quantified AI demand cycle rather than a generic inventory recovery.
Retail investors holding broad technology ETFs like the Technology Select Sector SPDR Fund (XLK) have minimal direct exposure to pure-play optical component stocks. The average holding of Coherent or Lumentum in a major tech ETF is less than 0.15%. For targeted exposure, investors typically use niche ETFs like the IOPC or the SPDR S&P Semiconductor ETF (XSD), where these firms comprise a larger share of the portfolio, often between 3% and 5%.
J.P. Morgan's upgrade hinges on the fading of a key technological obsolescence risk, unlocking value in optical stocks poised to benefit from both AI and a cyclical recovery.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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