Important updates on the AI-infrastructure trade are anticipated from Nvidia’s GPU Tech Conference and the Optical Fiber Communications Conference and Exhibition.
Next week, Nvidia’s flagship GPU Tech Conference is anticipated to showcase the company’s upcoming chip architectures. However, optical interconnects—which enable communication between clusters of GPUs—will also be highlighted as a component of the artificial intelligence trend.
The market for optical interconnects might quadruple to $73 billion by 2030 as AI workloads demand capabilities beyond conventional copper conductors, according to a Bank of America report released on Monday.
Analyst Vivek Arya anticipates that Nvidia (NVDA) would spearhead this change, possibly being the first significant supplier to replace conventional copper-based server backplanes with co-packaged optics, a change that places light-speed communication right on the processor.
The “annual cadence in compute” from Broadcom (AVGO) and Nvidia is “necessitating a corresponding scaling of optical interconnects,” according to Arya.
Marvell Technology (MRVL) and Macom Technology Solutions Holdings (MTSI) are “purer-play” benefactors of this trend, while Nvidia and Broadcom are the “larger incumbents incorporating optics to strategically improve their portfolio,” according to Arya. Marvell is preferred due to its exposure to custom chips and optics, as well as its appealing 23x forward earnings multiple. According to Arya, Macom offers “higher quality” earnings and gross margins in addition to “underappreciated” exposure to optical components including photodetectors and lasers.
Arya anticipates that next week’s Optical Fiber Communications Conference and Exhibition will provide up-to-date commentary on the supply and demand landscape for the deployment of optical lasers and co-packaged optics. Last week, Nvidia struck multiyear deals with Lumentum Holdings (LITE) and Coherent (COHR) to purchase advanced laser and optical-networking products.
So far this year, shares in Lumentum and Coherent have increased by 68.6% and 31.4%, respectively. Because of their high valuations, Arya is indifferent about these names, but he thinks market expansion and OFC’s announcement could boost profitability. According to Arya’s study, Lumentum might make $35.30 per share by 2028, which is more than 50% more than the $23 Wall Street average.
Later this month, Lumentum and Coherent are scheduled to join the S&P 500 index SPX.
According to Arya, the transition to optical interconnects will still help traditional copper wiring suppliers like Credo (CRDO). He believes that Credo’s active electrical wires have a “distinct role” and present a lucrative multibillion-dollar business opportunity. Credo’s stock is a “compelling” opportunity at 24x forward earnings, according to Arya.
Arya went on to say that Nvidia’s roadmap has “profound influence over the direction of the optics industry,” warning that this could lead to volatility in the relevant equities. Shares of Macom have dropped 13.6% so far this month, while shares of Lumentum and Coherent have down 11.3% and 6.2%, respectively. Arya attributed this to investor repositioning and anxiety ahead of next week’s trade events.We anticipate strong, multiyear growth across all providers notwithstanding the volatility,” Arya said.
