Lumentum offers high risk and high upside as an AI optical bottleneck; despite a 58x forward P/E and recent surge, 150% earnings growth yields a sub-1 PEG, justifying a small position.

Now we move on to the stock that is likely to have the greatest upside potential of all of them. The fifth stock is Lumintum, and its trading symbol is LITE. But a great rise comes with risks.

This is easily the highest-risk stock on the list.

Lumentum manufactures optical and photonic technologies used to transmit massive amounts of data across artificial intelligence infrastructure . As AI clusters continue to grow, copper cannot solve all communication problems.

At longer distances and higher bandwidth requirements, your need for optics increases.

As for Lumentum, it achieved revenues of $1 billion in its last quarter. But look at management's forecast for the next quarter, which ranges between $1.22 billion and $1.275 billion.

The non-GAAP operating margin is 40%. The adjusted earnings per share range from $4.05 to $4.35.

The administration highlighted in particular the increasing adoption of 1.6 terabyte optical modules and optical circuit switching. This market could become extremely large. Citi recently estimated that the optical circuit switching market could reach around 11 billion by 2030.

With Lumentum and Coherent positioned as key suppliers, that's why "Lite" or Lumentum has joined the list. But I put a big star next to it.

The stock has seen a tremendous rise. Moving on to Edge's website, you can see that the stock has risen by an astonishing 560% in just the past twelve months, and is now at a new record high. They receive a rating of 70 from Edge.

Okay, Mark, how can you possibly want to buy this stock here? It's a question I get asked all the time. Do not , and I repeat, do not make investment decisions based solely on the recent performance of a stock.

At the same time, I am not ignoring that move because the biggest moves also usually come with increased expectations and high valuations. Therefore, we still need to determine whether this is a good purchase deal or not.

Therefore, I treat this as an investment with higher risk and a higher potential return. I don't allocate the same amount of capital to "Lite" as I do to the primary holding. I allocate a small amount of space to it .

Earnings for next year are expected to grow by 150% to $18.58 per share, giving the stock a forward price-to-earnings ratio of 58 times. So, it is by no means a cheap stock , but with 150% growth, the price-to-earnings- to-growth ratio remains well below one, which is interesting.

But at the same time, this type of valuation, with a price-to-earnings ratio exceeding 50 times, comes with high expectations, and that is why you should expect volatility if you decide to invest in this stock.

So, this is my thesis for October. AI teams have become so large that visual communication has become another bottleneck for critical infrastructure. Lumentum is positioned directly in front of this trend.

Then there's Lumintum, which is the optical bottleneck of artificial intelligence.