NVIDIA Bets $4B on AI Optics
NVIDIA is investing $2 billion each into LITE and COHR to bolster its AI optics supply chain. The move, aimed at securing critical components for its AI infrastructure, sent shares of both companies higher in premarket trading.
The investment is not just a financial stake but also includes multi-billion dollar purchase commitments and future capacity access rights for advanced laser components from both Lumentum and Coherent. This strategic move aims to secure the supply chain for next-generation AI data center infrastructure. The funds are also designated to support research and development and the expansion of US-based manufacturing capabilities for both companies. At the core of this deal is the push to accelerate the commercialization of Co-Packaged Optics (CPO) technology. CPO integrates optical transceivers directly with network switches, a critical step to increase bandwidth and energy efficiency in the massive data centers, or "AI factories," that power artificial intelligence. Analysts note that as AI scaling becomes less about the chip and more about communication, the network fabric itself is the next major bottleneck. Lumentum is a key supplier of high-power lasers essential for CPO platforms. The company is a dominant provider of the 200G-per-lane electro-absorption modulated lasers (EMLs) that are critical for the 1.6T transceivers being deployed in the latest AI clusters. Coherent, formed from a $7 billion merger of II-VI Incorporated and Coherent, Inc. in 2022, is a leader in the optical transceivers that convert electrical signals from GPUs into light for fiber-optic transmission. This strategic investment is seen as a move by NVIDIA to vertically integrate and control critical components of its AI hardware supply chain, reducing geopolitical exposure and insulating itself from supply chain stress. By funding the expansion of domestic manufacturing, NVIDIA aligns with U.S. industrial priorities. The partnership with Coherent builds on a 20-year relationship between the two companies. Following the announcement, Coherent's stock surged over 15%, while Lumentum's saw a jump of nearly 12% at the close. Baird analyst Tristan Gerra reiterated a Buy rating on Nvidia stock, noting that optical technology is becoming increasingly vital for AI infrastructure and is positioned to replace copper at 400G/lane speeds.
