Key insights
- JPMorgan analysts reiterated 'overweight' ratings on Nvidia-backed optical stocks Coherent (COHR) and Lumentum (LITE), recommending a 'buy the dip' strategy. Despite recent pullbacks driven by concerns over adoption rates of co-packaged optics and a lack of summer catalysts, analysts believe these worries are overblown. The affirmation of ratings and price targets could reignite rallies in these AI-related names, suggesting a positive near-term outlook for these specific tech stocks and potentially the broader AI infrastructure sector.
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A pair of Nvidia-backed stocks that were among investors' favorite AI names earlier this year, have pulled back lately. JPMorgan analysts see that as an opportunity.
The analysts reiterated "overweight" ratings on Coherent (COHR) and Lumentum (LITE), and recommended buying the dip. In a note to clients Thursday, they wrote that the stocks have been "weighed down by a host of concerns" as they have each slipped about 20% from highs experienced earlier this month, about four times the 5% decline the S&P 500 has seen in the same time.1
Among the concerns were a lack of catalysts to drive the stocks higher over the summer after posting big rallies to start the year, along with worries about the rate of adoption of so-called co-packaged optics, connectors made by Coherent and Lumentum that are replacing copper wiring in some AI data centers. The analysts said they see the concerns as overblown, and said they have created an opportunity for investors to buy into the stocks.
The affirmed ratings and price targets could help improve sentiment around Coherent and Lumentum, and reignite a rally that carried shares of the companies to record highs earlier this year.
The analysts maintained their targets of $380 for Coherent and $1,130 for Lumentum. Among the analysts tracked by Visible Alpha with current ratings of the stocks, Coherent has an average target of $413, while Lumentum stands at about $1,110.
Coherent shares were up 1% at about $358 in late trading Thursday, while Lumentum shares rose more than 3% to $883. So far this year, Coherent shares have jumped roughly 90%, while Lumentum shares are up 140%.
Shares of both makers of optical networking equipment companies were boosted back in March by announcements that Nvidia (NVDA) was investing $2 billion in each, and would collaborate with the companies on future products. The news that the companies were joining the S&P 500 also lifted shares, as well as Lumentum's CEO saying the company was nearly sold out of its production capacity through 2028.
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