AI infrastructure shift to optical networks creates chip shortage risk—8 stocks to watch

The article identifies a structural shift underway in data center architecture driven by the computational demands of artificial intelligence. Traditional copper wiring, long the standard for data center connectivity, cannot keep pace with the bandwidth requirements of modern AI workloads. Optical connections—which transmit data as light through fiber rather than as electrical signals through copper—offer both higher speed and lower energy consumption. The shift is not yet complete, but the pace is accelerating, and the article argues that optical hardware supply will become a bottleneck as demand rises.

The article organizes the optical infrastructure ecosystem into four layers: optical digital signal processors (DSPs), photonic lasers, transceivers, and optical traffic routing. Marvell Technology is identified as the market leader in optical DSPs—the chips that convert electrical signals from AI processors into light for transmission. The strategic weight of this role is evident from Nvidia's actions: Nvidia made a $2 billion investment in Marvell and partnered with it to integrate Marvell's optical networking directly into NVLink, Nvidia's interconnect ecosystem. Broadcom is another major player in optical DSPs, benefiting from its large custom chip business.

In the photonics layer, Lumentum Holdings manufactures high-power indium phosphide lasers, photodetectors, and optical engines—the raw light sources that power optical transceivers. The company holds what the article describes as a "virtual monopoly," with few global competitors capable of producing these lasers at scale. Even companies that sell complete transceiver modules frequently use Lumentum's lasers. This dominance gives Lumentum pricing power and structural advantages as optical adoption accelerates.

For transceivers—the devices that couple optical and electrical signals—Coherent and Applied Optoelectronics are the two companies highlighted. Coherent is vertically integrated from raw substrate materials through receivers and has positioned itself as an essential partner to cloud providers. Applied Optoelectronics is also vertically integrated, manufacturing its own laser chips in-house and aggressively ramping manufacturing capacity to meet rising demand. The article notes that Applied Optoelectronics is a key Microsoft supplier, though this customer concentration poses risk. The final layer—optical traffic routing—includes Amphenol, which provides optical interconnect solutions and connectors within server racks and also supplies passive copper backplanes for Nvidia's NVLink; Corning, which manufactures the high-density fiber cables and connection systems that form the physical backbone of AI data centers; and Ciena, which builds optical routing systems for long-distance traffic between data centers. The article concludes that all eight stocks offer exposure to the optical infrastructure boom, though with different risk profiles and dependencies.