Photonics capacity squeeze

Artificial intelligence data centers are running into a less visible limit: the lasers and optical chips that move data between racks are now a chokepoint. LightCounting said sales of Ethernet optical transceivers used in these systems doubled in 2024 and rose another 70% in 2025. (lightcounting.com) Those parts matter because graphics processing units cannot train as one giant system unless they can exchange data at very high speed. LightCounting said large clusters can require as many as six optical transceivers per graphics processing unit in “scale-out” networks, with even higher bandwidth needs in “scale-up” designs. (lightcounting.com) The demand spike has already remade the market. LightCounting estimated total sales of optical transceivers and related products reached $23.8 billion in 2025, up 55% from 2024, while Ethernet optical transceiver sales alone were close to $18 billion. (lightcounting.com) The customer list is narrow. LightCounting said Amazon, Google, Meta and Microsoft account for more than 50% of artificial intelligence spending on optical transceivers today, after already representing more than 40% of Ethernet transceiver sales from 2018 through 2023. (lightcounting.com) That concentration is flowing straight into supplier results. Coherent said on May 28, 2025 that fiscal 2025 revenue was expected to grow by more than 22%, with artificial intelligence data centers identified as a key market for optical transceivers, components and co-packaged optics. (coherent.com) Lumentum said on August 12, 2025 that it had seen “robust demand” for cloud products supporting artificial intelligence data centers in the quarter ended June 28, 2025. In its annual filing, the company described itself as a supplier of optical and photonic components for high-capacity fiber links used in cloud data center and artificial intelligence and machine learning networks. (lumentum.com) (sec.gov) Chip companies are now designing around the optics bottleneck instead of treating it as a side issue. Nvidia said on March 18, 2025 that its Spectrum-X Photonics and Quantum-X silicon photonics switches would use co-packaged optics to link millions of graphics processing units, with Coherent and Lumentum among the supply-chain partners. (nvidia.com) Broadcom made a similar bet. The company said on October 8, 2025 that it was shipping Tomahawk 6-Davisson, which it described as a 102.4-terabit-per-second Ethernet switch built with third-generation co-packaged optics for hyperscaler artificial intelligence networks. (broadcom.com) Startups are trying to move optics closer to the chip package as well. Ayar Labs said on December 11, 2024 that it raised $155 million from investors including Advanced Micro Devices, Intel Capital and Nvidia, bringing total funding to $370 million and valuation above $1 billion. (ayarlabs.com) There is one important counterpoint to the sold-out narrative: some researchers now say the optics shortage is easing faster than the graphics processing unit shortage. In March 2026, LightCounting said suppliers had added indium phosphide laser capacity and that production capacity for optical chips and transceivers was catching up, even as graphics processing units, memory and switch application-specific integrated circuits still constrained cluster growth. (lightcounting.com 1) (lightcounting.com 2) That leaves photonics suppliers in an awkward spot. They are expanding into the fastest-growing part of the data center market, but they are doing it with a buyer base dominated by four cloud companies and a demand curve that LightCounting says could still swing from “soft landing” to “bumpy ride” in 2027 and 2028. (lightcounting.com)