Lumentum (LITE) is expected to see stronger growth and higher estimates as demand for optical components accelerates, with multiple technology pathways and sustained market tightness supporting the outlook, Morgan Stanley said in a report Wednesday.

The investment bank cited rising optical content across data infrastructure and opportunities in co-packaged optics, optical circuit switching and transceivers, with the total addressable market projected to exceed $90 billion in the coming years.

The update follows an investor briefing where the company highlighted a new multi-year, multi-billion-dollar agreement for optical circuit switching. Morgan Stanley expects the OCS business to exceed $1 billion in annual revenue by 2027, calling it the "biggest incremental positive."

Morgan Stanley said that while the stock's valuation is "relatively full," the durability of market "tightness" and high-margin artificial intelligence products could push the company toward a $900 "bull case" scenario.

The firm has an equal weight rating on Lumentum and raised its price target to $595 from $520.

Shares of Lumentum were up more than 9% in Wednesday trading.

Price: 709.69, Change: +60.13, Percent Change: +9.26