The optical and photonics sector is bouncing back in premarket trading Wednesday, with Coherent (Nasdaq: COHR), Lumentum (Nasdaq: LITE), and Applied Optoelectronics (Nasdaq: AAOI) all pushing higher after a rough Tuesday session. COHR and LITE are each up 4.2% in premarket trading, while AAOI is leading the trio with a 4.7% gain.
A Market-Driven Pullback, Not a Fundamental One
Yesterday’s declines across the sector had little to do with company fundamentals. As covered in our prior reporting on Tuesday’s session, markets sold off broadly as investors initially feared that rising tensions with Iran could rattle risk assets.
U.S. markets are stabilizing this morning, and the photonics names are among the first to recover. That makes sense. When a sector is driven by a structural, multi-year buildout in AI infrastructure, a geopolitical headline is a dip, not a thesis-breaker.
NVIDIA’s $4 Billion Bet on Photonics Is the Real Story
The more important catalyst this week is NVIDIA’s announced $4 billion investment into Coherent and Lumentum for photonics and silicon photonics technology. This is NVIDIA signaling, loudly, that solving the interconnect bottleneck inside AI data centers is now a top-tier infrastructure priority. As Jensen Huang laid out on NVIDIA’s most recent earnings call:
“Computing demand is growing exponentially. The agentic AI inflection point has arrived.”
Jensen Huang, NVIDIA Q4 FY2026 Earnings Call
When you’re building AI factories that consume multiple gigawatts of compute, the speed at which data moves between chips becomes a critical constraint. Photonics, specifically co-packaged optics and optical circuit switches, is how you break that constraint. NVIDIA’s investment is a direct acknowledgment that COHR and LITE are not just vendors. They’re strategic partners.
Keep in mind that NVIDIA CEO Jensen Huang spent much of last year traveling to Korea and drinking beers and eating wings with memory executives to lock up supply. That move has proven extremely prescient as NVIDIA has been largely insulated from memory spikes. Today, Huang is doing the same thing with optics. I wouldn’t want to bet against his track record (and owning the most influential product road maps that drive optics demand!).
Jensen Huang flew to Korea and locked up memory supply while most CEOs were still twiddling their thumbs… Now he’s locking up optics. The shortage in the space is about to get very intense.
— Eric Bleeker (@bleekertech) March 2, 2026
Lumentum CEO Michael Hurlston put it plainly after the company’s Q2 FY2026 results, in which revenue surged 65.5% year over year to $665.5 million: “We are only at the starting line for two substantial opportunities: optical circuit switches and co-packaged optics.” The company’s OCS backlog has already exceeded $400 million, and it received an incremental multi-hundred-million-dollar CPO order deliverable in the first half of calendar 2027.
The optical circuit switching demand comes from Alphabet, while NVIDIA is expected to increasingly bet big on co-packaged optics across the next two years.
Coherent is in a similar position. Its Datacenter and Communications segment grew 34% year over year in Q2 FY2026, reaching $1.208 billion and representing roughly 72% of total company revenue. CEO Jim Anderson guided for continued strong growth through H2 FY2026 and throughout FY2027.
AAOI, the smaller but fastest-moving name in the group, posted a record Q4 2025 with revenue of $134.27 million, up 33.9% year over year. Management projected full-year 2026 revenue could exceed $1 billion. Looking ahead to 2027, the company predicted monthly revenue could hit $378 million just from its transceiver products. That’s an absolutely massive surge. The stock has already jumped 173.49% year to date heading into this morning.
GTC Could Be the Next Catalyst
NVIDIA’s GTC keynote is scheduled for March 16, 2026, and prediction markets are pricing in near-certainty that Jensen Huang will discuss agentic AI, Blackwell architecture, and next-generation product roadmaps. It’s widely expected the company will unveil new switches that utilize co-packaged optics. However, be on the lookout for new inferencing chips based on Groq’s architecture that could be another catalyst for optics stocks.
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