Key Takeaways
- Lumentum fell to $750 on Monday after agreeing to an all-stock sale to Marvell for 4.5 Marvell shares apiece, which were worth $820 at Marvell’s price then.
- Lumentum trades at 26x forward earnings, below its five-year average of 30x, so the gap below the offer looks more like a bargain than a warning.
- Alphabet’s 103% Cloud growth and Arista’s guide for 38%-40% growth in 2027 show that Lumentum’s biggest markets are still spending.
- The main risk is that the laser shortage eases, and Coherent’s report on Wednesday is the first test of that.
Lumentum (LITE) agreed on Monday to sell itself to Marvell Technology (MRVL) for 4.5 Marvell shares apiece, and its stock fell to $750 that morning anyway. Marvell was at $182, down about a quarter from its Oct. 28 close, so those 4.5 shares were worth $820.
Whether that $70 gap is a bargain or a warning comes down to what Lumentum is worth with no deal at all. Alphabet (GOOG), one of its largest customers, has already reported. So has Arista Networks (ANET), whose AI switches run on optics like Lumentum’s. Its closest independent rival in lasers, Coherent (COHR), reports on Wednesday.
The gap itself is normal for this kind of deal. As Gary Black pointed out on X, “traders and merger arbs invariably sell down the acquirer’s stock particularly if there is a long time frame between deal announcement and deal close.” This deal isn’t expected to close until the first half of 2028. Lumentum has slid further since, closing Tuesday at $680.16.
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Lumentum showed its numbers early
Lumentum had been due to report on Thursday, Nov. 5, the date still on its calendar. Instead, it put out its September-quarter results alongside the deal. Revenue rose 136.5% to $1.26 billion, and adjusted EPS of $4.57 beat the top of its own $4.05-$4.35 range. For the December quarter, it guided to revenue of $1.575 billion to $1.625 billion.
Analysts expect revenue to more than double again this fiscal year and to reach nearly $10 billion in fiscal 2028:
To reach this year’s $6.78 billion, Lumentum would need about $2 billion a quarter in the back half, up from the $1.6 billion midpoint of its December guide. Nothing in Monday’s numbers argues for cutting that.
Lumentum’s gross margin has risen every quarter, from 30.1% in the December 2024 quarter to 52.5% in the September 2026 quarter:
That’s what a shortage looks like. Lumentum’s CEO said in October that its parts are effectively sold out through early 2029. Management last put the shortfall on its EML laser chips at more than 30% of demand. Any update to that figure is the detail to watch from here.
Priced below its own average
At Monday’s close, Lumentum traded at 26x forward earnings, below its five-year average of 30x:
(It hit 80x as recently as May.)
At its average multiple, the stock would be worth about 17% more than Monday’s close, on the earnings analysts already expect. So the market isn’t paying up for Lumentum’s own business, deal or no deal.
The risk is that those earnings come from a shortage. In fiscal 2024, when customers cut inventory, Lumentum’s revenue fell 23.1% and its operating margin sank to -26.6% on TIKR’s basis.
The customers are still building
Lumentum’s management has called Google one of its largest customers, and Alphabet’s Oct. 28 report shows no sign of a pullback. Google Cloud revenue rose 103% to $30.7 billion in the third quarter, and Alphabet said TPU systems sales were a meaningful contributor. In the quarter, Alphabet also raised $28.7 billion in new notes and $12.4 billion by selling stock. It just announced a $15 billion data center investment in Malaysia, too. I wouldn’t expect a company raising that kind of money to cut its optics orders.
Arista expects that spending to keep growing fast. Its third-quarter revenue rose 58.5% to $3.66 billion, well above its $3.3 billion guide. On its call, it guided to 38%-40% growth in 2027, to about $18.5 billion. That’s an AI network build-out still speeding up into next year, and those networks need lasers.
Coherent gives us the first look at supply
New capacity is the biggest threat to that margin, and Coherent is adding it. Coherent set out to double its indium phosphide laser output by the end of September and to more than double it again before 2028.
For its fiscal first quarter, Coherent guided to a non-GAAP gross margin of 39.5%-41.5%. Lumentum’s was 50.4% in the June quarter on the same basis, against Coherent’s 40.2%. If Coherent’s margin climbs along with its output, the shortage is still lifting the whole group. If the extra output comes without extra margin, laser prices may be starting to give.
Bargain over warning
With the ratio fixed, Lumentum’s price follows Marvell’s shares and the odds that the deal closes, far more than any quarter’s numbers. So even strong news on the business may barely move it. Marvell’s own quarter isn’t the issue: it said preliminary revenue came in line at the $3.15 billion midpoint of its outlook. The selling has been about the price and the dilution.
The way I see it, the gap is a bargain. On its own, Lumentum trades below its usual multiple, its December guide keeps pace with what analysts expect, and its customers keep spending. If the deal falls apart, that’s a decent floor to land on.
Of course, all of that depends on the laser shortage holding. If Coherent’s output or Lumentum’s next shortfall figure shows supply catching up, those forward earnings would come down fast, and the floor with them.
So what is Lumentum stock actually worth if the deal doesn’t go through?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
