Two picks-and-shovels beneficiaries of the AI infrastructure buildout — optical components maker Lumentum Holdings (NASDAQ: LITE) and semiconductor equipment giant Applied Materials (NASDAQ: AMAT) — have posted year-to-date gains of 121% and 67%, respectively, crushing Nvidia's 12% advance and drawing fresh attention from investors seeking to diversify AI exposure beyond the chip leader. The contrast, highlighted in a Motley Fool analysis published Saturday, reflects a straightforward dynamic: the AI buildout is consuming components and manufacturing tools at a pace that has pushed both companies to record quarterly revenue in 2026, while Nvidia — whose dominant GPU franchise is already priced to near-perfection — has delivered outstanding results but correspondingly modest share appreciation.
The surge is grounded in fundamentals that go well beyond share-price momentum. Nvidia itself put $2 billion into Lumentum in March 2026, a direct validation that optical interconnects — not just graphics processors — are now considered mission-critical infrastructure for AI clusters. The official Nvidia press release described the partnership as a multiyear agreement to accelerate innovation in advanced optics technologies and announced a purchase commitment for advanced laser components alongside the $2 billion equity investment.
Lumentum: Optical Bottleneck Turns Into Earnings Catalyst
Lumentum manufactures the lasers, transceivers, and photonic components that move data at high speed inside data centers, converting electrical signals to light and back to enable the low-latency, high-bandwidth connections AI clusters require. As hyperscale cloud customers have poured capital into AI infrastructure, Lumentum's components have become a bottleneck — and a pricing lever.
In its fiscal third quarter ended March 28, 2026, Lumentum reported record revenue of $808.4 million, up 90.1% year over year, driven primarily by transceiver and laser chip demand. GAAP earnings per share reached $1.50; non-GAAP EPS hit $2.37, both sharply ahead of the prior-year period when the company posted a net loss. Non-GAAP operating margin expanded to 32.2%, up 2,140 basis points year over year.
For the fiscal fourth quarter, Lumentum guided to revenue of $960 million to $1.01 billion and non-GAAP EPS of $2.85 to $3.05 — midpoints that would represent yet another record.
CEO Michael Hurlston was direct about the demand picture on the earnings call. Supply is the constraint, not demand. "We are significantly undershipping demand," Hurlston said, adding that the company is having to make allocation choices among customers. The shortfall on pump lasers specifically amounts to roughly 30% of customer demand, even after Lumentum front-loaded more than half of a planned 40% capacity expansion. Long-term supply agreements now lock in laser capacity allocations through calendar 2027, giving the company pricing stability but leaving customers queuing for incremental volume.
The Optical Circuit Switch (OCS) business — which allows data centers to dynamically reconfigure optical connections between racks without electrical conversion, reducing both latency and power draw — cleared $10 million per quarter three months ahead of schedule. The OCS backlog has exceeded $400 million, with most deliveries slated for the second half of calendar 2026.
Analysts have responded with a wave of target increases. JPMorgan raised its price target to $950 in April 2026, and price goals across the covering analyst community range from roughly $900 to $1,400, with the consensus leaning toward buy-equivalent ratings.
Not all observers are unqualified bulls. The Q3 print technically missed the $820.4 million institutional consensus by about $12 million. Lumentum also trades at roughly 56 times forward earnings — a premium that reflects expectations of continued hypergrowth but leaves limited room for execution stumbles. Optical component demand has historically cycled sharply, and some analysts note that the current surge is concentrated in a small group of hyperscale customers.
Applied Materials: Equipment Spending Supercycle Lifts Chip Tool Leader
Applied Materials is the world's largest maker of front-end chipmaking equipment, supplying the deposition, etch, ion implantation, and metrology systems that produce the advanced logic and memory chips powering AI workloads. Its customers include Taiwan Semiconductor Manufacturing Company (TSMC), Samsung, Micron, and SK Hynix.
In its fiscal second quarter ended April 26, 2026, Applied Materials reported record revenue of $7.91 billion, up 11% year over year, with GAAP diluted EPS of $3.51 (up 33%) and non-GAAP EPS of $2.86 (up 20%). The result marked the company's fourth consecutive quarter of beating analyst expectations. Non-GAAP gross margin reached 50%, the highest in more than 25 years.
The Semiconductor Systems segment — the core equipment business — generated $5.97 billion in the quarter. DRAM, driven heavily by high-bandwidth memory demand for AI training, represented 29% of that segment's revenue mix, with leading-edge foundry and logic at 67%.
CEO Gary Dickerson raised the company's forecast for semiconductor equipment market growth to more than 30% in calendar 2026, up from a prior estimate of more than 20%. "The rapid global build-out of AI computing infrastructure combined with Applied's strong leadership positions in leading-edge logic, DRAM and advanced packaging provide an exceptionally strong foundation for sustained, multi-year revenue and profit growth," Dickerson said.
William Kerwin, senior equity analyst at Morningstar, called it a "strengthening" AI-fueled upcycle for wafer-fab equipment investment. "Artificial intelligence infrastructure demand is immense, and supply is scarce," Kerwin told Reuters.
For the fiscal third quarter, Applied Materials guided to revenue of approximately $8.95 billion — roughly 23% above the prior-year quarter — and non-GAAP EPS of approximately $3.36, both well ahead of analyst expectations at the time.
The macro backdrop supports continued momentum. Industry trade group SEMI updated its 300mm fab equipment forecast in April 2026 to $133 billion for the full year, up 18%, with growth projected to continue to $151 billion in 2027. "AI is resetting the scale of semiconductor manufacturing investment," said Ajit Manocha, president and CEO of SEMI.
Applied Materials China Revenue: One Resolved Legal Matter, One Ongoing Dependency
Before drawing straightforward conclusions from Applied Materials' growth profile, investors should note two China-related facts. First, Applied Materials paid a $252.5 million settlement to the U.S. Department of Commerce's Bureau of Industry and Security in February 2026, resolving allegations that it had routed semiconductor manufacturing equipment — specifically ion implanters — through its South Korean subsidiary to China's Semiconductor Manufacturing International Corporation (SMIC) between 2021 and 2022, after SMIC was placed on the U.S. Entity List. The Department of Justice and Securities and Exchange Commission closed their related investigations without taking action. Applied agreed to conduct internal audits of its export compliance program and maintain compliance training, and faces a three-year suspended denial of export privileges that activates if it fails those conditions.
Second, China remains a significant revenue contributor: Applied Materials generated $2.09 billion from China in its fiscal second quarter, or 27% of total revenue. That concentration, combined with the prior export-control case, is a factor any investor should weigh against the broader growth narrative.
Why AI Spending Has Spread Beyond Chips
The contrast between Lumentum and Applied Materials' share performance and Nvidia's is not a sign that Nvidia's business has weakened — it reported fiscal 2026 revenue of $215.9 billion, up 65% year over year. Rather, it reflects where the market sees underpriced growth: in the infrastructure layers that enable AI chips to function at scale. Optical interconnects, pump lasers, and wafer-fabrication tools are less glamorous than Nvidia's GPUs, but they are the components hyperscalers cannot simply buy off the shelf.
The four largest hyperscalers — Amazon, Alphabet, Meta, and Microsoft — projected combined capital expenditure of approximately $610 billion for 2026, roughly 77% above 2025. That spending flows through the entire AI supply chain, and the portions allocated to optical networking and semiconductor equipment have been large enough to produce supply shortages at Lumentum and a multi-quarter equipment order backlog at Applied Materials.
For investors weighing either stock, the standard caveats apply: past share-price performance does not predict future results, and both companies carry valuation premiums that depend heavily on sustained AI capital expenditure. Any slowdown in hyperscaler spending or shift in chip architecture could compress demand for Lumentum's optical products or Applied Materials' equipment faster than consensus forecasts currently anticipate.
Frequently Asked Questions
What AI infrastructure stocks have beaten Nvidia in 2026?
Lumentum Holdings (LITE) and Applied Materials (AMAT) both outpaced Nvidia's roughly 12% year-to-date gain, with Lumentum up approximately 121% and Applied Materials up approximately 67% as of late May 2026. Both companies benefit directly from hyperscaler capital spending on AI data centers — Lumentum through optical components and Applied Materials through semiconductor manufacturing equipment.
What does Lumentum Holdings do?
Lumentum manufactures optical and photonic products including lasers, transceivers, and optical circuit switches used inside AI data centers to move data between chips and servers at high speed over light rather than copper wire. Its products are a critical component in hyperscale AI clusters, where the bandwidth and latency demands of AI training and inference workloads have made high-speed optical interconnects a bottleneck.
Is Applied Materials a good investment for AI semiconductor equipment exposure?
Applied Materials is the world's largest supplier of front-end semiconductor manufacturing equipment, and its fiscal Q2 2026 results showed record revenue of $7.91 billion with the company raising its 2026 equipment market growth forecast above 30%. Investors should weigh its strong positioning in leading-edge logic, DRAM, and advanced packaging against its roughly 27% China revenue concentration, its resolved $252.5 million export-control settlement, and valuation levels that already reflect substantial expected growth. This does not constitute personalized investment advice.
Why is Lumentum under-shipping customer demand?
Lumentum's CEO stated in the Q3 FY2026 earnings call that the company is short-shipping customers by roughly 30%, primarily because manufacturing capacity for indium phosphide electro-absorption modulated lasers — a key component in high-speed transceivers — cannot be expanded quickly enough to meet the surge in AI data center orders. Lumentum expanded capacity by roughly 40% but is executing under long-term supply agreements that have locked in allocations, leaving incremental demand unmet until additional capacity comes online through 2027.
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