Soaring Lumentum stock gets overbought as Wyckoff points to a dive
AI Sentiment: 20/100 Bearish
This score is generated through AI-driven analysis of the article's content.
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Buy LITE only after a sharp mean-reversion pullback (targeting the ~$630 consensus zone, then ~$500 if panic). Thesis: the NVIDIA-linked data-center/optical demand and laser pricing/margin expansion are real, and management guides revenue $780–$830 with operating margin 30–31%; conservative management plus laser-driven gross margin should re-rate the stock once valuation resets.
Key Risk: Laser pricing/margins mean-revert faster than expected (or demand slows), turning the pullback into a fundamental downcycle rather than a valuation reset.
Sell/short LITE into strength. The stock is in Wyckoff markup near ATH with RSI/Stoch overbought and forward P/E ~115 vs sector ~21.6. Even with strong fundamentals (systems/components growth, margin expansion), the article flags consensus downside to ~$630 (~-30%) and a potential flush toward ~$500 if FOMO flips to panic.
Key Risk: A sustained upside earnings/margin beat that keeps the markup bid intact and forces analysts to raise targets, pushing LITE higher despite overbought signals.
- Lumentum stock has soared from $36 in 2023 to $900 today.
- The company recently received a large investment from NVIDIA.
- The stock has become highly overbought, pointing to a reversal.
Lumentum stock price has been in a strong bull run and is hovering near its all-time high. It has soared from a low of $36 in 2023 to $897 today. It has jumped by 135% this year and is the second-best performing company in the S&P 500 Index after Sandisk. So, is it safe to buy the LITE stock?
Lumentum stock has jumped amid its strong momentum and NVIDIA investment
Lumentum is a top company that makes optical and photonic solutions that are used widely in the semiconductor and data center industries. The majority of its revenue comes from its cloud and networking solutions, with the rest coming from its industrial business.
Lumentum stock has jumped as the data center industry continues gaining steam, with the biggest companies predicting that they will spend over $650 billion this year. In total, global data center spending is expected to jump to over $1 trillion this year.
The stock gained momentum after the company received a large investment from NVIDIA, the biggest company in the world. NVIDIA believes that the company will keep growing in the coming years.
LITE also jumped after the company continued its strong revenue growth. Its components revenue jumped to $443 million, representing 66.7% of its total figure. Its systems revenue soared to $221 million rom $138 million in the same period last year.
Most importantly, the revenue growth has coincided with the performance of its margin as the prices of its lasers have soared. Its gross margin jumped to 36.1% from 24.8% in the same period a year earlier. This growth helped it to move from a net loss of $51.6 million to a profit of $64.3 million.
Is LITE a good stock to buy today?
The management believes that its revenue growth will continue. It expects the upcoming results to show that its revenue will be between $780 million and $830 million, with the operating margin rising to between 30% and 31%. Lumentum has always been highly conservative, meaning that its margin and revenue will be better than expected.
Still, there is a risk in chasing the ongoing Lumentum stock price rally. For one, the average estimate among Wall Street analysts is that its stock will drop to $630, down by nearly 30% from the current level.
Also, the company has become highly overvalued, with its forward price-to-earnings (P/E) ratio rising to 115, higher than the sector median of 21.6.
Lumentum share price is overbought and in the markup phase
LITE stock chart | Source: TradingView
The weekly timeline chart shows that the LITE stock has soared in the past few months. This rebound started earlier last year and has moved to nearly $1,000.
A closer look shows that the stock remained inside a narrow range for years, when it was in the accumulation phase of the Wyckoff Theory. The ongoing rebound is because it has jumped to the markup phase, which is characterized by high demand and Fear of Missing Out (FOMO).
There are also signs that the Relative Strength Index (RSI) and the Stochastic Oscillator have moved to the overbought level.
As such, while the rally may continue, there is a risk that it will pare back some of those gains. If this happens, it may drop to as low as $500 as the ongoing FOMO transitions to panic selling among investors.
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