Irrational Analysis
Semiconductor Engineer, Engineering-Driven Investment Analysis
Copper scale-up is dead, making optics hyper bullish, especially Lumentum. Nvidia's Rubin NVLink Nyquist cut from 56 to 47 GHz signals failure: reflections matter, and bidirectional links make them worse. Feynman will have to use 16-wavelength DWDM ring-modulator CPO at roughly 50-64G NRZ. x.com x.comÂ
Pluggable optics have a new scaling path alongside CPO and NPO, supporting demand for light from Lumentum, Coherent and Applied Optoelectronics. Nvidia and Cisco's planned USFP packs 16 full-duplex 400G/lane connections into an OSFP-sized footprint, targeting four times the bandwidth density of 200G/lane modules while retaining replaceability. Volume-production timing and adoption remain unknown. x.com x.comÂ
More lasers per module and new 400G DSPs could keep the pluggable-optics runway open for years, supporting Lumentum, Coherent, Marvell, Applied Optoelectronics and Sivers even as co-packaged optics approaches. NVIDIA and Cisco co-designed a module with four times the bandwidth in the same slot; fewer modules per GPU look bearish, but the added optical content points the other way. x.comÂ
Co-packaged optics standards could make finished transceiver modules smaller and more interchangeable as chip designers build optical engines inside their packages. That is another reason to avoid Lumentum, Coherent and Applied Optoelectronics and prefer Soitec. Lumentum and Coherent now earn a lot from finished modules, leaving them exposed if the architecture changes. x.comÂ
Marvell risks paying a peak-scarcity price for Lumentum if optical supply catches up by 2028-30. The proposed ~$99B deal values Lumentum at roughly 20x guided annualized revenue and 58x estimated after-tax operating income, while Lumentum, Coherent and Chinese suppliers are adding laser capacity. The DSP-and-laser combination has strategic logic, but durable scarcity economics and Nvidia's response remain uncertain. x.comÂ
Scale-up moving to optics adds demand for optical suppliers even if new AI architectures need fewer switches. Bigger data centers and more GPUs add to that need; Jensen Huang expects future optics requirements to be several orders of magnitude above what NVIDIA ships today. This challenges the optics bear case for Lumentum, Coherent, Tower Semiconductor and Credo. x.comÂ
Wafer-tested VCSEL arrays could erode Lumentum's laser scarcity premium if scale-up links adopt wide, parallel designs. Lumentum's in-rack demo used arrays but does not replace every high-power laser; Credo and ams OSRAM seek approval for a parallel-link standard in 2027. Multiple suppliers would pressure pricing power and margins. Near-term earnings could still benefit from laser shortages, with Lumentum sold out through early 2029. x.comÂ
Optics and photonics should be among AI's biggest winners as faster GPU networks need optical connections that suppliers cannot expand quickly enough. Lumentum says some components are sold out through early 2029; Sivers is investing $30M to target more than 100M lasers a year, with operations expected in Q4 2027. Potential US restrictions on Chinese transceivers could reshape supply in 2027. Applied Optoelectronics and Sivers are the favorites. x.com x.comÂ
Rising 1.6T switching demand favors optical suppliers, though their execution risks vary. Bank of America says the market could grow ~101% annually through 2030. Marvell's leading DSPs and Lumentum's supply-short 200G EML lasers are lowest risk; Applied Optoelectronics' capacity expansion and Fabrinet's customer concentration make them medium risk. Aeluma remains pre-commercial, while Lightwave Logic's polymer modulators are a high-risk moonshot despite its TSM partnership. x.comÂ
The photonics-as-AI-bottleneck claim has faded, leaving Lumentum facing more pain before the theme recovers. A large December options node sits at $600; the stock bot targets downside at $650 and $595, with $581 a possible liquidity sweep where smart money would buy instead of rushing in at $650 or $630. Most photonics companies will likely never come back. x.comÂ
Marvell CEO Matt Murphy's vision of fully disaggregated data centers opens up future optical interconnect demand for Coherent and Lumentum. At Computex he said AI's next bottleneck is connectivity: copper reaches about 2.5m at 200Gbps per lane and barely spans a rack at 400Gbps. Optics would let CPUs, GPUs and memory sit in separate pools, moving optical engines into the compute layer, perhaps 10x per rack, a net-new TAM. Jensen Huang: copper where you can, optics where you must. x.com x.comÂ
