DCF assumptions — base / bull / bear scenarios
This page lays out the input assumptions for a scenario-based DCF on Lumentum. The valuation work is not the goal here; the goal is to make the input assumptions explicit so anyone running their own model can sanity-check the LITE valuation context against thesis-anchored scenarios. All projections beyond Q3 FY2026 (the most recent management-guided period) are ⚠ analyst projections, not company guidance.
Anchor data points (verified-primary ✓)
| Anchor | Value | Source |
|---|---|---|
| FY2025 revenue | $1,645.0M | FY2025 10-K |
| FY2025 GAAP net income | $25.9M | FY2025 10-K |
| Q2 FY2026 revenue | $665.5M | Q2 FY2026 release |
| Q2 FY2026 non-GAAP op margin | 25.2% | Q2 FY2026 release |
| Q2 FY2026 non-GAAP diluted EPS | $1.67 | Q2 FY2026 release |
| Q3 FY2026 revenue guide | $780–830M | Q2 FY2026 guidance |
| Q3 FY2026 non-GAAP op margin guide | 30.0–31.0% | Q2 FY2026 guidance |
| Q3 FY2026 non-GAAP diluted EPS guide | $2.15–2.35 | Q2 FY2026 guidance |
| Diluted share count (Q2 FY2026) | 87.8M | Q2 FY2026 release |
| Cash + STI (Dec 27, 2025) | $1,155.3M | Q2 FY2026 release |
| Convertible-notes carrying value (Dec 27, 2025) | $3,182.5M | Q2 FY2026 10-Q |
| NVDA Series A Preferred (face value) | $2,000.0M | March 2, 2026 8-K |
| NVDA-implied common-equivalent shares | 2,876,415 | March 2, 2026 8-K |
Management aspirational targets (⚠ aspirational)
| Target | Window |
|---|---|
| $1.25B quarterly revenue run rate | 9–12 months from March 2026 |
| $2.0B quarterly revenue run rate | 18–24 months from March 2026 |
| $30+ annualized non-GAAP EPS | CY2028 |
| Order book filled | Through 2028 |
Three-scenario revenue trajectory
| Fiscal year | Bear | Base | Bull |
|---|---|---|---|
| FY2025 actual | $1,645M | $1,645M | $1,645M |
| FY2026 estimate | $2,800M | $3,000M | $3,200M |
| FY2027 estimate | $3,600M | $4,500M | $5,500M |
| FY2028 estimate | $4,200M | $6,000M | $8,000M |
| FY2029 estimate | $4,500M | $7,000M | $10,000M |
| FY2030 estimate | $4,500M | $7,500M | $11,500M |
⚠ All FY2026 → FY2030 figures are scenario-illustrative analyst projections.
Scenario logic:
- Bear: AI capex pause in CY2027; NVDA renegotiates capacity (still buys but at lower ASPs); Cloud Light pluggable franchise compressed by CPO transition; Industrial Tech continues to bleed.
- Base: AI capex slope continues but moderates. NVDA capacity-allocated revenue ramps as the new fab comes online. CPO transition begins to add to (not displace) revenue. Lumentum hits the $1.25B and $2.0B quarterly-run-rate management targets, reaches a $7-8B annualized peak by 2030.
- Bull: AI capex acceleration continues; CPO transition is additive at premium ASPs; LITE captures meaningful CPO module-assembly share; new product categories (NVLink CPO, scale-up optics) layer on. Management $30 EPS target is exceeded.
Three-scenario non-GAAP operating margin
| Fiscal year | Bear | Base | Bull |
|---|---|---|---|
| FY2025 actual | 11% (implied from full-year non-GAAP) | 11% | 11% |
| FY2026 estimate | 23% | 27% | 30% |
| FY2027 estimate | 22% | 30% | 35% |
| FY2028 estimate | 20% | 32% | 38% |
| FY2029 estimate | 18% | 32% | 38% |
| FY2030 estimate | 17% | 30% | 36% |
⚠ Margin trajectories assume continued duopoly pricing discipline (base/bull) or its erosion (bear).
Margin logic:
- Bear: ASP pressure as AI capex slows; new-fab depreciation drag without commensurate volume; CPO-assembly margin compression on Cloud Light.
- Base: Operating-leverage profile of Q2 FY2026 (25.2%) extends into the 30%+ range as guided for Q3 FY2026 and modestly increases as volume scales. Mix-shift to AI-photonics premium products supports margin expansion through CY2027.
- Bull: ASP step-functions continue (1.6T → 3.2T premium), CPO modules capture premium ASP, third-source competition does not materialize. Peak margin in 35–40% range.
Capex envelope
| Fiscal year | Bear | Base | Bull |
|---|---|---|---|
| FY2026 estimate | $400M | $500M | $600M |
| FY2027 estimate | $700M | $900M | $1,200M |
| FY2028 estimate | $500M | $700M | $900M |
| FY2029 estimate | $400M | $500M | $700M |
| FY2030 estimate | $350M | $400M | $500M |
⚠ Capex envelope sized to the fab-build profile; bear case has reduced fab investment if demand slows.
NVDA-customer concentration
LITE’s customer concentration to NVDA is the load-bearing risk variable. Approximate framework (⚠ analyst-inferred):
| Scenario | NVDA-direct revenue share | Implication |
|---|---|---|
| Bear | 40%+ of revenue by FY2028 | High concentration; renegotiation risk material |
| Base | 25–30% by FY2028 | Concentrated but balanced by other hyperscalers |
| Bull | 25–35% by FY2028 with growth in absolute dollars | Concentration is lower-share-of-larger-pie |
NVDA’s revenue contribution to LITE in FY2026 is likely meaningful but well below 25% — the multibillion purchase commitment ramps as the new fab comes online (FY2027–FY2028 weighted). The path to >25% NVDA concentration is through the new fab’s NVDA-allocated capacity contributing materially to FY2028 revenue.
Free-cash-flow profile (illustrative base case)
| Fiscal year | Revenue | Op margin | Op income | Capex | FCF |
|---|---|---|---|---|---|
| FY2026 | $3.0B | 27% | $810M | $500M | ~$300M |
| FY2027 | $4.5B | 30% | $1,350M | $900M | ~$400M |
| FY2028 | $6.0B | 32% | $1,920M | $700M | ~$1,200M |
| FY2029 | $7.0B | 32% | $2,240M | $500M | ~$1,700M |
| FY2030 | $7.5B | 30% | $2,250M | $400M | ~$1,800M |
⚠ Tax-adjusted FCF; assumes ~25% effective tax rate, modest working-capital absorption.
The capex-heavy FY2026–FY2027 absorbs FCF; FY2028+ is the high-FCF period as the new fab is built and revenue scales against the fixed cost base. The FCF inflection in FY2028 is the key DCF support point.
Net debt + share-count framework
| Pro forma | Status |
|---|---|
| Cash + STI (post-NVDA, mid-CY2026) | ~$3.0–3.5B |
| Convertible-note carrying value | $3.2B |
| NVDA Series A Preferred | $2.0B (equity, not debt) |
| Net cash / (debt) on carrying basis | roughly net-cash zero |
| Diluted share count (post-conversion of all converts + preferred) | ~95–105M depending on settlement assumptions ⚠ |
The convertibles will largely settle in shares (deep in-the-money) — diluted shares post-full-conversion are likely in the 100M+ range, materially above the current 87.8M. The $30 EPS target needs to be evaluated at this fully-diluted share count, not at the current diluted share count.
Discount-rate framework (illustrative)
| Component | Estimate |
|---|---|
| Risk-free rate (10-year UST) | ~4.0–4.5% |
| Market risk premium | 5.5% |
| LITE beta (5-year) | 1.5–2.0+ (high-beta tech) |
| Implied cost of equity | ~12–14% |
| Cost of debt (after-tax) | ~3% |
| Tax rate | ~25% |
| Implied WACC | ~10–12% |
⚠ Discount-rate inputs are conventional ranges; actual model should use spot risk-free rate.
Terminal-value framing
Terminal value is the single most important DCF assumption for a fast-growing high-volatility name like LITE. Two framings:
- Multiple-based exit — use a forward EV/EBITDA multiple at terminal year (e.g., 10–15× on FY2030 EBITDA). Sensitive to multiple-compression assumptions.
- Perpetuity-growth — assume long-run revenue growth ~5% and steady-state EBITDA margin ~30%. Less sensitive but assumes structural-growth durability.
Both methods should converge on the base case if the assumptions are internally consistent.
What the scenarios are NOT
- Not management guidance — only Q3 FY2026 numbers are formally guided
- Not point estimates — wide ranges intentional
- Not endorsement of management aspirational targets — the $30 EPS / $2B quarterly run rate targets are management framing, not committed forecasts
Cross-link
- Quarterly trend — historical anchor data
- Margins and pricing — margin scenario logic
- Capex cycle — capex envelope detail
- Balance sheet — net debt and share-count math
- Comps / valuation — peer-multiple framework
- 07_thesis bull_case / bear_case — scenario-narrative
Sources
- All anchor data points sourced from Lumentum FY2025 10-K, Q1 FY2026 release, Q2 FY2026 release, Q2 FY2026 10-Q, March 2, 2026 8-K (linked across the financials KB section) ✓
- All scenario projections are analyst inferences ⚠