Optical Infrastructure Boom: Why Photonics Pioneers Coherent, Lumentum, and Fabrinet Dominate the AI Hardware Cycle

The Data Movement Challenge Reshaping AI Architecture

Artificial intelligence has entered a critical inflection point. As language models and deep learning systems scale exponentially, the computational bottleneck has shifted from raw processing power to data movement itself. Traditional copper interconnects are hitting hard physical limits—power consumption, heat dissipation, and bandwidth constraints are creating severe limitations for training and inference workloads in next-generation data centers.

Optical interconnects and silicon photonics technologies have emerged as the essential solution. By replacing copper links with fiber-based and chip-integrated optical I/O running at 400 gigabits per second (400G), 800G, and even 1.6 terabits per second (1.6T) per port, data centers can dramatically accelerate GPU communication, reduce idle time, and improve training efficiency. These speeds represent a multiple order of magnitude improvement over legacy copper-based systems, unlocking the architectural shift that AI infrastructure demands.

Market Scale: A Multi-Year Growth Tailwind

The financial opportunity is substantial and multi-faceted:

• Optical interconnects: Growing from ~$16 billion (2024) to $34–41 billion by 2030
• Silicon photonics: Expanding from ~$3 billion (2025) to $12–16 billion by 2032
• Data center interconnect spending: Climbing from ~$15 billion (2025) to $26 billion by 2030

This expansion sits within a broader semiconductor cycle projected to push total industry revenue toward $1 trillion before 2030. Investors have begun rotating capital into photonics specialists, recognizing that optical-first data center architecture will define infrastructure spending for the entire decade.

Lumentum: Manufacturing the Optical Backbone

Stock Ticker: LITE | Zacks Rank: #1 (Strong Buy)

Lumentum manufactures critical optical components—lasers, modulators, photodiodes, and complete photonic engines—that enable ultra-high-speed data transmission in AI data centers, telecom networks, and consumer electronics. The company’s revenue base is firmly anchored in photonics, with diversification through 3D-sensing lasers.

Financial Momentum:

• Revenue growth: +56% this year, +31.4% next year
• Earnings growth: +163% year-over-year, +41.9% forward
• Earnings estimate revisions (60 days): Current year +11.1%, next year +13.1%
• Valuation: ~44x forward earnings

Despite a 250% year-to-date surge, the valuation reflects Lumentum’s acceleration into one of the fastest-growing niches within the largest technology infrastructure buildout in history.

Coherent Corp: Central to the Optical Ecosystem

Stock Ticker: COHR | Zacks Rank: #1 (Strong Buy)

Coherent Corp produces lasers, optical components, and photonic modules that underpin high-speed optical interconnects and co-packaged optics—two critical enabling technologies for the AI buildout. The company serves AI data centers, semiconductor equipment manufacturers, advanced communications, and industrial segments.

Financial Momentum:

• Revenue growth: +15.1% this year, +14.5% next year
• Earnings growth: +44.5% this year, +24.6% next year
• Estimate revisions (two months): Current year +11.4%, next year +5.1%
• Valuation: ~35x forward earnings

Trading at a premium that reflects its central position in the photonics supply chain, Coherent has demonstrated strong execution and remains well-positioned as optical architectures become standard.

Fabrinet: Volume Manufacturing for the Photonics Era

Stock Ticker: FN | Zacks Rank: #2 (Buy)

Fabrinet specializes in high-end contract manufacturing and advanced packaging of optical and photonic components for data center, telecom, and semiconductor customers. The company effectively serves as the volume-scale manufacturing backbone for leading photonics innovators, directly benefiting from demand for 400G, 800G, and 1.6T optical modules.

Financial Momentum:

• Revenue growth: +28.5% this year, +16.9% next year
• Earnings growth: +30.7% this year, +16.1% next year
• Estimate revisions (two months): Current quarter +8.7%, current year +8.6%
• Valuation: ~35x forward earnings
• Historical performance: 23% annual earnings growth over 15 years

The 117% year-to-date appreciation reflects recognition of Fabrinet’s disciplined execution and its critical role scaling photonic component production.

The Investment Case: Still Early Innings

Despite exceptional performance year-to-date, the photonics infrastructure theme appears to be in early-cycle adoption. Outside specialized semiconductor and networking circles, mainstream investor awareness of optical technologies’ criticality to AI infrastructure remains limited.

As Wall Street develops deeper understanding of the upgrade cycle’s scale and duration, capital is expected to continue flowing into photonics suppliers across the stack. Lumentum, Coherent Corp, and Fabrinet each occupy distinct but complementary positions:

• Component innovation (Lumentum, Coherent)
• Advanced manufacturing (Fabrinet)

Together, they provide exposure to a potential multi-year demand cycle powered by data center operators’ transition toward optical-first architecture. For investors seeking concentrated exposure to AI infrastructure evolution, these three companies represent the enabling layer where hardware economics and performance requirements align most directly.