Nvidia commits US$2 billion to Lumentum for AI data center optical components, but stock may already be priced for years of growth ahead

Nvidia announced a multiyear partnership with Lumentum Holdings (LITE) involving a reported US$2 billion investment in manufacturing and R&D for optical components used in AI data centers. Lumentum's stock has surged 128.34% year-to-date and 13.44% in the past 30 days, driven by demand for the optical cables and lasers that connect servers in large-scale AI computing facilities.

Lumentum is experiencing 67% year-over-year growth in cloud and networking revenue as hyperscale data centers (the massive server farms run by companies like Amazon, Google, and Microsoft) rapidly scale up their AI infrastructure. The company supplies advanced optical components that enable faster, denser connections between thousands of AI chips processing data simultaneously.

Investors face conflicting valuation signals: one analysis says the stock is 14% overvalued at its current US$881.64 price, while another model suggests it trades at a 62% discount. This disagreement hinges on whether the market has already priced in Lumentum's multi-year AI growth, or whether significant upside remains — a critical question for anyone considering buying the stock now.