Why Optical Stocks Could Be the Next Big Opportunity in AI

As data centers push copper to its limits, optical technology – or photonics – is becoming a critical pillar of the AI infrastructure ecosystem. By using light instead of copper to transfer data, tech companies can unlock unprecedented bandwidth and energy efficiency, scaling complex workloads without running into speed or power bottlenecks.  

In this article, we are going to look at how optical or “photonics” stocks could represent a rare early-stage investment opportunity within the AI space. Combining near-term commercial momentum with long-term secular tailwinds, could the theme be worth a closer look?

Generative AI Technology is Constrained by Data Speeds  

For decades, data centers have relied largely on copper wiring to move data across circuit boards, racks, and clusters. The reason for this is simple – copper is highly affordable, offers excellent electrical conductivity for short-distance transmission, and is flexible enough to easily route through tight circuit boards and server racks. 

However, as AI models have become larger and more computationally intensive, traditional copper interconnects have increasingly reached bandwidth, latency, heat, and power consumption limits. In an era defined by massive, real-time AI workloads, copper has hit a physical wall.  

Optical Technology Offers a Solution

Photonics – which uses light (photons) instead of electrical signals to transmit data – offers a solution. It can move data at a far higher bandwidth than copper can, and it can achieve the higher bandwidth while consuming a fraction of the energy required by legacy copper interconnects.  

This powerful combination of increased bandwidth and lower power consumption makes the technology a game-changing breakthrough. For hyperscalers and data center operators, it is an operational necessity for scaling next-generation AI infrastructure. 

Nvidia’s Investments in Photonics  

One company that has been investing heavily in photonics recently is Nvidia. In the first half of 2026, it invested in numerous optical technology businesses including:  

• Coherent – Nvidia structured a multi-billion-dollar strategic agreement with Coherent, combining a direct $2 billion cash investment with future purchase commitments to lock in future access and capacity rights for advanced laser and optical networking products¹.  
  Lumentum – Nvidia executed a $2 billion deal with Lumentum to secure a dedicated, long-term supply of advanced laser components². 

• Marvell Technology – Nvidia invested $2 billion in Marvell in a deal designed to enable the two companies to collaborate on silicon photonics technology³. 

• Corning – Nvidia took a $500 million equity-linked stake in Corning as part of a multi-year partnership designed to scale US optical-connectivity production 10-fold⁴. 

• Ayar Labs – Nvidia participated in Ayar Labs’ $500 Million Series E round (valuing Ayar at $3.75 billion)⁵. 

The Projected Growth of the AI Optical Market  

Given the advantages of optical technology, analysts expect the industry to grow at a prolific rate in the years ahead. For example, analysts at Goldman Sachs expect the market for Co-Packaged Optics to grow roughly 13-fold between 2026 and 2028⁶. Meanwhile, they expect the market for pluggable optical modules to grow roughly 10-fold over the same period. Overall, Goldman Sachs expects the total addressable market (TAM) for AI networking to grow from roughly $15 billion in 2026 to approximately $154 billion by 20281 and it believes that Co-Packaged Optics can capture around 60% of that TAM.  

Optical Technology: Pluggable Transceivers Vs Co-Packaged Optics

Breaking Down the Optical Technology Ecosystem

When it comes to investing in photonics stocks, there are many ways to play the theme. The ecosystem includes:  

• Light sources & materials: Companies in this layer (e.g. Coherent, Lumentum, Corning) provide the foundational physical materials needed to turn electrical signals into optical signals. 

• Photonic integrated circuits & components: Companies in this segment (e.g. Credo, Ciena, Amphenol) specialize in optical chips and modules that send light between compute boards.  

• Optical compute & interconnect hardware: Companies in this area of the market (e.g. Broadcom, Marvell, Macom Technology Solutions) build high-speed optical switches, drivers, and photonic chip fabrics that process or route data using light. 

• Systems, networking & software: Companies in this layer (e.g. Nvidia, Cisco, Intel) build the full rack-scale server architectures and software control layers that coordinate optical data routing across AI clusters.  

The Benefits of an Optical Technology ETF 

Given the broad scope of the ecosystem, investing via a diversified photonics ETF could be a smart way to play the theme. This kind of product could help to capture balanced growth across the entire ecosystem – from raw laser material suppliers and chip packaging specialists to optical switch pioneers – while simultaneously reducing stock-specific risk.  

Footnotes:

¹Nvidia, NVIDIA and Coherent Announce Strategic Partnership to Develop Optics Technology to Scale Next-Generation Data Center Architecture, as of March 2, 2026

²Nvidia, NVIDIA Announces Strategic Partnership With Lumentum to Develop State-of-the-Art Optics Technology, as of March 2, 2026

³Nvidia, NVIDIA and Corning Announce Long-Term Partnership to Strengthen US Manufacturing for AI Infrastructure, as of May 6, 2026

⁴The Next Web, NVIDIA takes warrants for $500m in Corning stock as fibre-optics partnership goes structural, as of May 6, 2026

⁵Ayar Labs, Ayar Labs Closes $500M Series E, Accelerates Volume Production of Co‑Packaged Optics, as of March 3, 2026

⁶Goldman Sachs, Optical Networking, the next mega trend in AI infrastructure, as of April 17, 2026