Lumentum has benefited from AI in the short term, but Alphabet likely has the better long-term opportunity.
Artificial intelligence (AI) has created huge winners across the tech industry, with some companies posting triple-digit returns over the past year. Among them is the optical and photonic components manufacturer Lumentum Holdings (LITE +3.93%), which has surged 267% year-to-date.
There’s no doubt the company’s growth has been impressive, and it’s possible that its stock could continue to be a winner for investors. But I also think there’s a case to be made for betting on the global tech leader Alphabet (GOOGL +0.82%) (GOOG +0.79%), which already has substantial cash reserves, diversified revenue streams, and is massively profitable.
Here’s what’s going well for Lumentum, but why Alphabet still looks like the better AI stock.
Image source: Getty Images.
Why Lumentum appeals to investors
I get the appeal of Lumentum for investors. The company has carved out a unique niche in the AI infrastructure space with products that allow for ultra-fast data transmission between servers and computer clusters. As data center spending has soared over the past few years, Lumentum has certainly benefited.
The company recently reported its first-quarter results with revenue jumping 58% to nearly $534 million, and non-GAAP net income soared from $0.18 per share in the year-ago quarter to $1.10, beating Wall Street’s consensus estimate of $1.03.
Lumentum’s management also issued strong guidance for the second quarter, with sales expected to be $650 million, at the midpoint of guidance, representing a 62% increase from the year-ago quarter.
Over the next five years, Nvidia CEO Jensen Huang believes that big tech companies will spend between $3 trillion to $4 trillion expanding their data centers. If that figure is even remotely accurate, this spending could continue to be a significant tailwind for Lumentum’s business.
Today’s Change
(3.93%) $14.17
Current Price
$374.50
Key Data Points
Market Cap
$26B
Day’s Range
$354.96 – $375.10
52wk Range
$45.65 – $375.10
Volume
128K
Avg Vol
4.2M
Gross Margin
27.19%
Dividend Yield
N/A
Why Alphabet is the better long-term AI play
Yet for all of Lumentum’s impressive growth, Alphabet offers investors something far more valuable: diversified AI exposure backed by proven profit generation.
Consider that in the most recent quarter, Alphabet generated $102 billion in sales and had $2.87 in earnings per share. All that growth came from its diverse businesses, including Google Search, software subscriptions, mobile devices, platforms, YouTube, and Google Cloud.
Today’s Change
(0.82%) $2.60
Current Price
$319.68
Key Data Points
Market Cap
$3826B
Day’s Range
$314.70 – $320.11
52wk Range
$140.53 – $328.83
Volume
564K
Avg Vol
37M
Gross Margin
59.18%
Dividend Yield
0.32%
Alphabet is also vying for the top spot in the AI chatbot race with OpenAI, and its Gemini 3 chatbot is giving ChatGPT a run for its money. Gemini 3 has 650 million weekly users, and management has said that AI Mode on Search now has 2 billion monthly users. The company has also integrated its AI services into its Google Cloud, giving customers even more reason to sign up for its cloud services.
The point here is that Alphabet has diversified opportunities in AI and is generating massive revenue and earnings. Add to all this the fact that the company has more than $24 billion in free cash flow to invest in new AI businesses for years to come, and it appears Alphabet has the long-term advantage over Lumentum.
And finally, Alphabet’s stock is far cheaper than Lumentum’s. Alphabet’s price-to-earnings ratio is just 31 — far below the tech sector’s average of 46 — compared to Lumentum’s P/E ratio of 203. That means investors are paying a premium for Lumentum right now, while Alphabet looks like a great deal both compared to Lumentum and the broader tech sector.
