(This is The Best Stocks in the Market , brought to you by Josh Brown and Sean Russo of Ritholtz Wealth Management.) Josh — Sometimes a company is perfectly positioned for a secular change that completely transforms its opportunity. It doesn’t happen all the time, so when you see it, it looks like magic. This creates a level of disbelief amongst people who have followed the company for a long time. It shatters their assumptions. It forces them to throw away their long-standing beliefs and think differently. It takes them out of their comfort zone. Some analysts are exhilarated at the prospect of a world-changing paradigm shift. Others are skeptical and refuse to accept that their previously held opinions might be wrong or out of date. This is what’s happened with the optical stocks over the last two years. Once it became apparent that this equipment would be among the most critical for the data center capex explosion, these stocks started to go. Not everyone believed that the uptick in revenue would be sustainable. Not everyone accepted that the earnings outlook was about to be permanently altered. And so the rallies in these stocks were met with a mixture of upgrades and price hikes as well as downgrades and valuation concerns. By now, as quarter after quarter led to increased company guidance, the analysts and investors who have been involved with these stocks have accepted that the world is different today than it was a few years ago. The fundamental stories for these component suppliers and technology vendors to the data center have become undeniable. Today we’re going to tell you the story of one such company, Lumentum (LITE) . This name has been on our Best Stocks in the Market list all year. The kneejerk reaction someone might have when encountering a stock that’s just made a 1000% move is “I missed it.” And that reaction isn’t totally wrong. The odds of this stock 10X-ing again anytime soon are pretty slim. But that doesn’t mean it’s done going up. We are putting this name in front of you now for two reasons — the first is that it’s important to be aware of the big winners in any market environment if you want to understand what’s going on. If this sounds obvious, you’d be amazed at how few people — even professionals — are even aware of this company’s existence, let alone the reason for its rally. The second reason is that there’s an interesting set-up here that could be the start of a fresh breakout, as the stock emerges from a consolidation below the year’s highs. In this column, Sean and I are focused on the risk and reward. So we’ll show the potential as well as where the risk management ought to kick in, same as always. Our story begins with a Feb. 3 earnings report that sent this stock into orbit. It had already been rallying, but the guidance from management that night turned an uptrend into a parabolic riot. It then went on a three month run into the summer, at which point momentum cooled down and traders took profits. We come to you now with the stock challenging those levels as we head into Q4… Best Stock Spotlight: Lumentum Holdings, Inc. (LITE) Sean — Lumentum makes the optical components that move data at high speeds. Think lasers, transceivers and circuit switches. They provide this essential equipment for AI data centers, cloud providers and telecom networks. It is another big winner within the AI Infrastructure trade. LITE trades around $937, off its recent all-time high of $1,085 but it’s still up roughly 500% over the past year. Zoom out further and the picture changes. The stock basically went nowhere from 2016 through 2023, closing 2016 at $39 and 2023 at $52, with a 51% drawdown in 2022 sandwiched in between. The re-rating didn’t start until 2024 (up 60% that year), accelerated hard in 2025 (up 339%), and has kept running into this year as AI optics demand was put in the spotlight. Similar to the DRAM (Roundhill’s memory-chip ETF) phenomenon, Roundhill launched a Photonics & Optics ETF (LYTE) built around this exact theme. LITE is the largest holding within the LYTE ETF, naturally. The chart looks like this for a reason. Fiscal Q4 revenue (ended June 27) hit $1.01 billion, up 109% year over year and above guidance. This was the eighth straight quarter of growth. Non-GAAP gross margin crossed 50% for the first time (50.4%, up 1,260 basis points year over year), and non-GAAP EPS of $3.23 beat the $2.97 consensus. The components segment revenue grew 103% to $649.4 million while Systems revenue grew 123% to $356.9 million. This thing is growing like a weed on steroids. Guidance says that growth isn’t close to done. Lumentum management guided Q1 fiscal 2027 revenue to $1.23 billion to $1.28 billion — a midpoint up about 130% year over year and well above the Street’s roughly $1.15 billion estimate. Management said the guide gets the company to its long-term target operating model more than a quarter ahead of schedule, with the optical circuit switch business expected to post its first triple-digit-million dollar revenue quarter. Next quarter is anticipated to be the ninth straight quarter of growth and the guide is accelerating. Risk management: Josh — LITE’s chart is one of the most explosive on the list. The stock ran from the $150s last fall to an all-time high of $1,085 in early May, an eight month move that barely paused for breath. That run invited a hard reset, and LITE spent May through July giving back a big chunk of the gain, falling all the way back to test the 200-day. Buyers showed up right there and the stock bounced hard off that level. It has since rebuilt itself in a tighter uptrend, reclaiming both moving averages and pushing back to $930, still below the spring high. The 50-day is rising at $854 and the 200-day at $726, both trending higher underneath price. A close above $1,085 opens up new ground on this chart. RSI is 53. That is about as neutral as a reading gets, which fits a stock chopping below its old high rather than trending hard in either direction. There is no momentum extreme here to lean on. A push through $1,085 on rising RSI would confirm buyers are ready to pay up for new territory. Stalling out here with RSI stuck in the 50s would say this level needs more work before it gives way. Traders can use the rising 50-day at $854 as their reference point. That is where the stock has found support during this rebound, and a close back below it would say the recent strength has faded. Investors can anchor to the 200-day at $726, exactly where buyers proved their conviction during the summer pullback. A weekly close below it now would be the first time this stock has failed that test. Obviously $726 is far below the current price, so this set-up is not for everyone. Personally, I’d prefer to enter above $1000 if I’m trading it, and hold for the breakout above the May high. I know that sounds counterintuitive to the “buy low, sell high” crowd. But we’re doing something very specific with stocks like these. The name of the game is to stack the odds of a breakout in our favor. We are not trying to pay the lowest price and sit tight. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. 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An optical stock has been on Josh Brown’s list all year. The chart looks explosive
Sep 24, 2026
