Investing.com -- Barclays upgraded Lumentum Holdings Inc (NASDAQ:LITE) to "Overweight" from "Underweight," setting a price target of $125, given significant growth potential driven by surging demand from hyperscale customers.
The brokerage highlighted a sharp increase in port counts and a strong preference for a U.S.-based supply chain as key factors accelerating adoption.
“We had our doubts that LITE could scale the module business beyond GOOG, but the combination of massive port count increases, combined with a strong desire to use a U.S. supply chain, have driven hyperscalers to qualify at an alarmingly fast rate,” analyst said.
Barclays (LON:BARC) noted the company's weaker-than-expected Q1 guidance, with management projecting a low-single-digit decline versus Street estimates of a 6% increase. However, it emphasized that robust 2025 forecasts, port count growth of 59% year-on-year and datacom revenue growth of 76%, make LITE a compelling long-term opportunity.
Barclays also noted that Coherent (NYSE:COHR) could benefit from rising port counts but added that its valuation remains tied to pending asset divestitures.
The semiconductor sector underperformed the S&P 500 in 2024, gaining 19% compared to the index's 23% rise. However, semiconductor-heavy ETFs like SMH still outperformed the QQQ, driven largely by AI-related momentum. While AI continues to be a growth catalyst, Barclays expects investors to rotate away from top-performing names if growth shows signs of slowing.