Lumentum Initiated as AI 'Bottleneck' Play, Sempra Upgraded on Market Overreaction in Week of Analyst Calls

Wall Street analysts issued a series of notable calls this week, initiating coverage on a key AI infrastructure play with a bullish outlook while downgrading others on concerns ranging from clinical trial setbacks to stretched valuations.

Bullish Call on AI Bottleneck

Lumentum Holdings (NASDAQ:LITE) received a new Outperform rating from Evercore, which initiated coverage with a $1,100 price target. The firm's thesis centers on Lumentum's critical role in solving a data bottleneck in the artificial intelligence supply chain.

According to Evercore, the high-speed silicon processors used in AI require advanced optical components to communicate effectively. Lumentum is a key producer of Indium Phosphide lasers, a scarce material essential for these connections. The firm projects the optical AI market will expand from $18 billion to over $90 billion by 2030, and it models Lumentum's fiscal 2028 earnings per share hitting $35, with gross margins potentially expanding to 54%.

Upgrades Target Mispriced Opportunities

Analysts at Jefferies upgraded Sempra Energy (NYSE:SRE) to Buy, arguing that the market has created a buying opportunity by overreacting to negative headlines. The report suggests concerns over Texas transmission capital expenditure delays and stalled California legislation have pushed Sempra's stock to a 14% earnings discount compared to its electric utility peers.

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In a separate call, Baird upgraded Sonida Senior Living (NYSE:SNDA) to Outperform with a $43 price target. The upgrade is based on a broad macroeconomic trend of an aging population creating strong demand for senior housing amidst a tight supply. While acknowledging Sonida's significant debt, Baird noted that virtually no debt matures until 2028, providing a window for organic growth to reduce leverage.

Downgrades Signal Caution

On the other side of the ledger, TD Cowen downgraded Eyepoint Pharmaceuticals (NASDAQ:EYPT) to Hold and slashed its price target to just $4. The downgrade follows a failed Phase III LUGANO trial, which the analyst believes has severely damaged confidence in the company's upcoming LUCIA trial. The firm is now removing all sales for the wet AMD treatment from its model, citing skepticism that regulators will accept the company's explanation of a statistical anomaly.

Covista Inc. (NYSE:CVSA) was downgraded to Hold from Buy by Truist, although the firm maintained its $140 price target. The analyst's rationale is based on valuation, stating that the market has already priced in the company's turnaround story. The report expresses difficulty in seeing a path to further multiple expansion, especially as weakness in the broader education sector could weigh on peer-group valuations.