Illumina, Inc. (NASDAQ:ILMN) has returned 118% over the past six months, compared to a 21.25% return for the Insider Monkey Billionaire Index and 14% for State Street SPDR S&P 500 ETF Trust.
Illumina has given investors a reason to look at it differently in 2026. After years of dealing with growth challenges and strategic distractions, the company is showing signs that its core sequencing business is getting back on track. Shares have risen sharply this year, gaining more than 100% year to date, helped by stronger results and improving expectations.
The question now is how much of that recovery is already reflected in the stock. Illumina has a strong position in DNA sequencing, and the long-term opportunity extends well beyond academic research. But at 46.17x trailing earnings and 40.32x forward earnings, investors are paying up for a business that still needs to prove it can sustain its return to growth.
On April 11, we wrote an article about 8 Best Quality Stocks to Buy According to Hedge Funds. The number 1 stock on the list has returned over 35% since. ILMN ranked fourth on that list.
The Bigger Opportunity Is Moving Sequencing Into Healthcare
Illumina sells the instruments and consumables that researchers, hospitals, and diagnostic companies use to sequence DNA. The business benefits from a recurring-revenue model: customers buy an instrument, then continue purchasing consumables to run tests. A growing installed base can therefore support revenue for years, rather than just when a new machine is sold.
The bigger opportunity is clinical adoption. Sequencing is becoming more useful in cancer testing, rare-disease diagnosis, and other areas where understanding a patient’s genetic information can influence treatment. Illumina said clinical markets accounted for roughly 65% of sequencing consumables revenue, and clinical consumables grew 15% outside China in Q2. U.S. and Canadian growth was particularly strong.
That matters because the opportunity is not limited to selling more instruments to research labs. If sequencing becomes a more routine part of healthcare, each new application can create demand for both instruments and the consumables used to run them. The catch is that adoption takes time, and research customers remain cautious about funding. Illumina still expects research and applied consumables to decline in 2026.
ILMN ranked 6th in our list of the Top 10 Oncology Stocks to Buy Now. To see which stocks made the list, click HERE.
NovaSeq X Is Helping, but New Markets Are Still Early
Illumina, Inc. placed more than 95 NovaSeq X instruments in Q2, continuing a strong run of demand. The benefit goes beyond the initial sale. Customers typically take six to nine months to reach normal consumables usage, meaning recent placements could keep adding to revenue into 2027. Management expects revenue growth to reach the high single digits next year.
The company is also expanding into multi-omics, which combines genomic data with other biological information, and into data services for drug discovery. Its Billion Cell Atlas project has begun generating revenue and had six pharmaceutical partners after three new additions following the quarter. These initiatives could give Illumina more ways to monetize its technology, but they are not yet large enough to carry the investment case on their own.
READ ALSO: What is Illumina’s (ILMN) Economic Moat, and is it Widening or Narrowing?
Valuation analysis: The recovery needs to last
Illumina trades at 46.17x trailing earnings and 40.32x forward earnings. Investors clearly expect earnings to improve, but even looking ahead, the stock isn’t cheap. The business is recovering, but a lot of that progress already seems to be reflected in the share price.
There are reasons to be optimistic. Q2 revenue grew 9.5% to $1.16 billion, and non-GAAP operating margin came in at 22.5%. Management also raised its 2026 revenue outlook to $4.60 billion to $4.64 billion and its adjusted EPS guidance to $5.30 to $5.40. As more customers come online with NovaSeq X, their growing use of consumables could help push revenue higher, even if instrument placements slow.
But there are a few things that could get in the way. Research and academic customers are still dealing with funding uncertainty, and Illumina expects that part of the business to remain weak this year. China is another complication, while higher freight and memory costs are pressuring expenses. The company has been able to offset some of these costs, but there is no guarantee that it can keep doing so if the pressure persists.
The other risk is that investors are giving the company credit for opportunities that have not yet become meaningful earnings drivers. Multi-omics and the Billion Cell Atlas could expand Illumina’s addressable market, but they are still early in their development. Meanwhile, the stock’s sharp rally leaves less room for execution to disappoint.
For the valuation to hold up, Illumina needs to keep clinical growth going, turn its recent instrument sales into steady consumables revenue, and deliver the earnings growth management expects. If it does, earnings could grow into the current valuation. But if growth slows or costs stay high, the stock could take a hit from both weaker earnings and a lower multiple.
Illumina, Inc. ranks among the Top 10 Healthcare AI Stocks to Buy.
Conclusion
Illumina’s business seems to be in a better place than it was a year ago. Clinical demand is growing, NovaSeq X is gaining traction, and newer opportunities in multi-omics could give the company more room to grow over time. But the research business is still struggling, and some of these newer opportunities will take time to pay off. At over 40x forward earnings, it may just be smart to wait and see how much of this growth actually comes through before buying the stock.
Market Sentiment
Illumina was held by 54 hedge funds with a combined stake value of about $3.02 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 48 hedge fund holders with a cumulative investment value of around $3.04 billion in the previous quarter.
READ NEXT: What is Illumina’s (ILMN) Economic Moat, and is it Widening or Narrowing? and Can Pfizer (PFE) Turn a Forward P/E Discount into Real Returns?
This article is originally published at Insider Monkey.
Hedge Fund Resource Center