The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.

The Wasatch Long/Short Alpha Fund, managed by Wasatch Global Advisors, has recently published its Q1 2026 investor letter, which is available to download here. A shift in investor sentiment led to a market correction and increased volatility in U.S. small- and mid-cap stocks during the first quarter. Despite this, enthusiasm for AI continued to support companies involved in infrastructure development. The situation intensified in the quarter due to the conflict in Iran, causing investors to consider the potential for rising oil prices and their wider implications on the global economy. In this context, the Russell 2500 Index returned 2.04% in the quarter, while the Wasatch Long/Short Alpha Fund—Investor Class surpassed this performance with a rise of 4.16%, supported by the outperformance of its short positions. In addition, please check the firm’s top five holdings to know its best picks in 2026.

In its first-quarter 2026 investor letter, Wasatch Long/Short Alpha Fund highlighted Lumentum Holdings Inc. (NASDAQ:LITE). Lumentum Holdings Inc. (NASDAQ:LITE) is a leading technology company that manufactures and sells optical and photonic products. On June 2, 2026, Lumentum Holdings Inc. (NASDAQ:LITE) closed at $1,029.15 per share. One-month return of Lumentum Holdings Inc. (NASDAQ:LITE) was 3.70%, and its shares gained 1,119.72% over the past 52 weeks. Lumentum Holdings Inc. (NASDAQ:LITE) has a market capitalization of $76.15 billion.

Wasatch Long/Short Alpha Fund stated the following regarding Lumentum Holdings Inc. (NASDAQ:LITE) in its Q1 2026 investor letter:

"Turning to short positions, detractors from Fund performance were those stocks that rose in price. One of the largest detractors among our shorts was Lumentum Holdings Inc. (NASDAQ:LITE). We hold the short position to offset the risk of some of our long holdings tied to the AI buildout. We believe the short position in Lumentum will help to mitigate the downside should the stocks of companies tied to AI infrastructure sell off broadly. But on a fundamental basis, we don’t think Lumentum has as powerful an economic engine as some of our long holdings tied to the AI buildout, nor do we think Lumentum will be as profitable."

Lumentum Holdings Inc. (NASDAQ:LITE) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 123 hedge fund portfolios held Lumentum Holdings Inc. (NASDAQ:LITE) at the end of the first quarter, up from 97 in the previous quarter. While we acknowledge the potential of Lumentum Holdings Inc. (NASDAQ:LITE) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Lumentum Holdings Inc. (NASDAQ:LITE) and shared the list of best AI infrastructure stocks to buy according to hedge funds. In addition, please check out our hedge fund investor letters Q1 2026 page for more investor letters from hedge funds and other leading investors.

READ NEXT: 33 Stocks That Should Double in 3 Years and 15 Stocks That Will Make You Rich in 10 Years.

Disclosure: None. This article is originally published at Insider Monkey.