Photonics Revolution: How Lumentum, Coherent, and Fabrinet Are Powering AI's Next Infrastructure Wave

The Optical Interconnect Boom Is Just Getting Started

The semiconductor industry faces a critical inflection point. As AI models scale exponentially, data movement—not raw compute power—has become the true bottleneck. Copper interconnects have hit their physical and power consumption limits, forcing a pivot toward optical solutions. This shift is creating one of the most significant hardware upgrade cycles in recent memory, and three companies are positioned directly at its center: Lumentum, Coherent Corp, and Fabrinet.

The market opportunity is staggering. Optical interconnects alone are projected to expand from $16 billion in 2024 to $34–41 billion by 2030. Silicon photonics—the faster-growing segment—should climb from $3 billion in 2025 to $12–16 billion by 2032. Data center interconnect spending, the direct beneficiary of AI infrastructure buildouts, is expected to surge from $15 billion in 2025 to $26 billion by 2030. These expansions are happening within a broader semiconductor cycle that could push total industry revenue toward $1 trillion by the end of the decade.

Why Optical Matters More Than Ever

The technical advantages are substantial. Modern optical interconnects operating at 400G, 800G, and 1.6T per port move data several times faster than traditional copper can support. Translation: GPUs communicate more efficiently, training cycles accelerate, and idle time drops significantly. This capability isn’t theoretical—it’s becoming mandatory as data centers transition toward optical-first architectures.

Three Players, Three Roles in the Photonics Ecosystem

Lumentum manufactures the critical optical building blocks: lasers, modulators, photodiodes, and complete photonic engines that power ultra-high-speed data transmission. The company also serves the consumer 3D-sensing market, diversifying its revenue while maintaining a photonics-centric focus. Current indicators are exceptionally strong—earnings estimates have risen 11.1% over the past 60 days, with current-year profit expectations climbing 13.1%. Revenue is projected to grow 56% this year and 31.4% next, while earnings are forecast to surge 163% year-over-year and expand another 41.9% thereafter. The stock carries a Zacks Rank #1 (Strong Buy) and trades at approximately 44x forward earnings—a premium valuation justified by accelerating growth and the company’s increasingly central role in the optical infrastructure shift.

Coherent Corp produces the lasers, optical components, and photonic modules deployed across AI data centers, semiconductor equipment, and advanced communications. Its solutions directly enable high-speed optical interconnects and co-packaged optics—technologies essential to the AI buildout. Earnings estimates for the current year have risen 11.4% in recent weeks, with next-year forecasts climbing 5.1%. Sales growth is expected to reach 15.1% this year and 14.5% next, with earnings projected to expand 44.5% and 24.6% over those periods. Trading at roughly 35x forward earnings after a 93% year-to-date rally, Coherent maintains strong momentum while remaining reasonably valued for a company anchoring one of the decade’s most significant hardware upgrade cycles. Like Lumentum, Coherent also earned a Zacks Rank #1 (Strong Buy) designation.

Fabrinet serves as the manufacturing backbone for photonic and electro-optical components, specializing in high-end assembly and packaging for data center, telecom, and semiconductor customers. The company benefits directly from rising demand for 400G, 800G, and 1.6T optical modules—essentially acting as the volume-scale production partner for leading photonics innovators. Current-quarter earnings estimates have risen 8.7% and year-to-date forecasts are up 8.6%. Sales are expected to increase 28.5% this year and 16.9% next, while earnings should grow 30.7% and 16.1% respectively. Despite a 117% year-to-date surge, shares trade at roughly 35x forward earnings. The stock carries a Zacks Rank #2 (Buy) and has demonstrated consistent execution, compounding earnings at an impressive 23% annually over the past fifteen years.

The Adoption Curve Is Steeper Than Most Realize

A critical point often overlooked: the photonics theme remains early in its mainstream adoption cycle. Beyond specialists embedded in semiconductor and networking circles, few investors fully grasp how essential optical technologies are becoming. As Wall Street develops deeper understanding of this transition’s scale and duration, capital will continue flowing into the photonics ecosystem.

Lumentum, Coherent, and Fabrinet each provide exposure to different layers of this buildout—all supported by rising estimate revisions, solid growth trajectories, and favorable analyst ratings. If AI data centers continue embracing optical-first designs, these companies are positioned to capture a multi-year demand wave that could reshape the semiconductor landscape.

The infrastructure upgrade is underway. The question isn’t whether it will happen, but how quickly investors will recognize its scope and capitalize on the shift.