AI Data Center and Cybersecurity Stocks Market Outlook

Jim Cramer is steering investors toward established AI infrastructure providers, favoring companies with proven backlogs and earnings growth over speculative small-cap photonics firms [1]. This shift in focus underscores a broader market trend where investors are prioritizing companies with tangible revenue streams from hyperscaler AI spending over unproven growth stories [1].

Photonics and AI Infrastructure

Cramer’s preference for Lumentum Holdings and Coherent centers on their demonstrated ability to execute within the AI data center supply chain [1]. Lumentum reported Q2 fiscal 2026 revenue of $665.5 million, a 66% increase compared to the prior year, while non-GAAP EPS of $1.67 outperformed the $1.4085 consensus estimate by 19% [1]. The company’s non-GAAP operating margin expanded by 1,730 basis points year-over-year to 25% [1]. Lumentum’s growth is supported by an optical circuit switch backlog exceeding $400 million and a new multi-hundred-million-dollar order for co-packaged optics [1].

Coherent, which operates at a larger scale, reported Q2 fiscal 2026 revenue of $1.686 billion, beating analyst estimates by 3% [1]. Its datacenter and communications segment grew 34% year-over-year to $1.208 billion, now accounting for approximately 72% of the company's total revenue [1]. Shares of Lumentum and Coherent have risen 143% and 84.38% year-to-date, respectively, reflecting strong investor demand for companies with verified order pipelines tied to hyperscaler infrastructure [1].

Cybersecurity Growth Trends

Beyond hardware, Cramer maintains a bullish outlook on cybersecurity leaders CrowdStrike and Palo Alto, arguing that the expanding threat landscape and cloud migration necessitate increased corporate spending [2]. Despite earlier concerns that AI might disrupt software business models, the sector has rebounded as Wall Street increasingly views AI as a driver for security demand [2]. CrowdStrike and Palo Alto shares have climbed 84% and 106% year-to-date, respectively [2].

Cramer attributes this performance to "exploding" earnings, which he suggests justifies higher price-to-earnings ratios [2]. TD Cowen recently raised its price targets for both firms, citing strong demand fueled by AI, while maintaining buy ratings [2]. Cramer specifically noted that CrowdStrike remains only 15% penetrated in its cloud-native market, suggesting a long runway for growth despite the significant year-to-date rally [2].

What to watch

• Lumentum Q3 Guidance: Monitor the company’s ability to hit its projected revenue range of $780 million to $830 million and its target non-GAAP operating margin of 30% to 31% [1].
• Coherent Production Capacity: Watch for updates on the company’s production capacity expansion, which management expects to drive growth throughout the remainder of fiscal 2026 and into 2027 [1].
• Cybersecurity Penetration: Observe whether CrowdStrike and Palo Alto can maintain their current growth trajectories as they expand their cloud-native security offerings against a backdrop of rising digital threats [2].

The market’s current focus on these names suggests that investors are increasingly filtering for companies that can demonstrate direct financial participation in the AI build-out. Whether these valuations can continue to expand depends on the ability of these firms to convert their multi-hundred-million-dollar backlogs and security demand into sustained, high-margin earnings growth [1, 2].