Optical Networking & Photonics

Optical networking, also called photonics, moves data with light (through fiber, lasers, and optical transceivers) rather than electrical signals. As AI clusters scale to thousands of chips, the demand to move data between them has exploded, driving a fast upgrade cycle and making the U.S.-listed suppliers of this ‘plumbing’ a distinct AI-infrastructure investment theme.

CategoryThematic / AI infrastructure
Representative companies10
Related ETFKODEX US AI Optical Communication Network ETF (0173Y0)
Last updated2026-06-04
Key takeaways
  • Optical networking (photonics) moves data with light through fiber, lasers, and transceivers; AI's bandwidth needs are driving a fast upgrade cycle from 800G to 1.6T and toward co-packaged optics.
  • The AI optical-transceiver market is set to grow from about $16.5 billion in 2025 to $26 billion in 2026, and silicon-photonics interconnects from about $3.69 billion in 2025 to $33.8 billion by 2034.
  • Demand is supply-constrained: McKinsey projects 800G transceiver output falling 40-60% short of demand through 2027.
  • U.S.-listed leaders include Ciena, Coherent, Lumentum, Marvell, Corning, and Fabrinet; the Akros AI Optical index is tracked by the KODEX US AI Optical Communication Network ETF.

What is optical networking (photonics)?

Inside and between data centers, data moves as pulses of light through glass fiber. The parts that make that work, lasers, optical transceivers, the fiber itself, and the switch chips that steer the traffic, are collectively “optical networking,” and the underlying science is photonics. Electrical wires lose signal over distance and burn power; light does not, which is why every long link in a modern network is optical. As AI made networks far larger, that optical layer went from a quiet utility to one of the hottest corners of the market.

Why is AI driving demand for optical networking?

Training a large model wires thousands of accelerators into one machine, and they must trade data constantly. The faster the chips, the more the network becomes the bottleneck, so each AI cluster needs more optics and faster ones. The AI optical-transceiver market is set to jump from about $16.5 billion in 2025 to $26 billion in 2026, roughly 57% year-over-year growth (TrendForce).

AI creates a new wave in demand for optical transceivers and accelerates LPO/CPO adoption.

— LightCounting

What does the market say?

The numbers are large and the supply is tight. The silicon-photonics optical-interconnect market is forecast to grow from about $3.69 billion in 2025 to $33.8 billion by 2034 (Global Market Insights); a separate forecast from Precedence Research puts the market near $28.75 billion by 2034 (Precedence Research). The near-term constraint is production. McKinsey’s analysis projected that 800G transceiver output would fall 40-60% short of demand through 2027 (McKinsey & Company). That shortage is part of why the listed suppliers have re-rated. The demand is already in the numbers: Ciena reported fiscal-year 2025 revenue of $4.77 billion, up 19% year-over-year, with orders exceeding revenue and a growing backlog tied to its expanding role in AI (Ciena Investor Relations).

Who should consider it?

This fits a growth-oriented investor who wants the picks-and-shovels of AI, the optical plumbing every cluster needs, rather than a bet on which model wins. The demand is concrete and already in results: Ciena reported fiscal-year 2025 revenue of $4.77 billion, up 19% year-over-year, with orders exceeding revenue and a growing backlog tied to its expanding AI role (Ciena Investor Relations). The shortage backdrop reinforces it, with McKinsey projecting 800G transceiver output falling 40-60% short of demand through 2027 (McKinsey & Company). For an allocator who already owns AI chips and wants the interconnect layer that scales with every new accelerator, the optical-specific angle is the appeal.

Size it as a high-beta satellite, not a core holding. This is a capital-cycle theme: the AI optical-transceiver market is set to jump from about $16.5 billion in 2025 to $26 billion in 2026, roughly 57% year-over-year (TrendForce), and that growth tracks hyperscaler capex that moves in waves, so an air-pocket in spending hits these names hard. A handful of hyperscalers and Nvidia’s roadmap drive much of the order flow, valuations are often rich, and a technology shift such as co-packaged optics can reshuffle which supplier wins the next generation. It is not for an investor who needs steady earnings, cannot stomach deep drawdowns, or wants to chase momentum, since the same supply tightness that lifts the group can reverse fast.

What are the key technologies?

Speed is the story. Networks are moving from 400G to 800G modules and on to 1.6T, and each step multiplies the optics needed. Two technologies matter for the next leg: silicon photonics, which builds optical functions onto a chip for lower power, and co-packaged optics, which puts the optics next to the switch chip to cut power per bit. Whoever leads those transitions captures the next wave of demand.

Which companies lead AI optical networking?

CompanySectorWhat it does
Ciena (CIEN) Technology · Optical Networking Systems Provides optical networking systems, software, and services that move data across long-haul, metro, and data-center-interconnect networks for carriers and hyperscalers.
Coherent (COHR) Technology · Photonics & Lasers Makes engineered materials, optoelectronic components, and indium-phosphide (InP) lasers used in the optical transceivers that wire AI data centers.
Lumentum (LITE) Technology · Optical Components Designs and manufactures optical and photonic components, including lasers and transceivers, for cloud and AI data-center networking.
Marvell Technology (MRVL) Technology · Data-Infrastructure Semiconductors Supplies data-infrastructure semiconductors, including optical DSPs and interconnect chips that power AI data-center networking.
Corning (GLW) Technology · Optical Fiber & Materials Makes optical fiber, cable, and connectivity that form the physical backbone of data-center and carrier networks.
Fabrinet (FN) Technology · Optical Manufacturing Provides precision optical and electro-mechanical contract manufacturing, assembling much of the industry's optical transceivers and modules.
Applied Optoelectronics (AAOI) Technology · Optical Components Designs and manufactures optical transceivers and components for data-center, broadband, and telecom networks.
Arista Networks (ANET) Technology · Data-Center Networking Builds high-speed data-center and AI networking switches whose port growth drives demand for optical interconnects.
Credo Technology (CRDO) Technology · High-Speed Connectivity Provides high-speed connectivity, including active electrical cables and SerDes that complement optical links inside AI clusters.
Broadcom (AVGO) Technology · Networking Semiconductors Designs networking and optical-interconnect semiconductors, including switch silicon central to AI data-center fabrics.

What are the risks?

Optical networking is a high-beta, capital-cycle theme. The same AI spending that drives it can pause.

  • Cyclicality. Demand tracks hyperscaler capex, which moves in waves; an air-pocket in spending hits these names hard.
  • Customer concentration. A handful of hyperscalers and Nvidia’s roadmap drive much of the demand, so orders can be lumpy.
  • Valuation. Many of these stocks trade at rich multiples that leave little room for disappointment.
  • Technology shifts. Co-packaged optics and linear-drive optics can reshuffle which suppliers win the next generation.

Related concepts, securities & terms

Related indices & ETFs

Frequently asked questions about optical networking

What is optical networking (photonics) investing?

It is investing in the companies that move data with light: fiber, lasers, optical transceivers, and the switch silicon around them ('photonics' and 'silicon photonics' are common synonyms). It has become a distinct AI-infrastructure play: the AI optical-transceiver market is set to grow from about $16.5 billion in 2025 to $26 billion in 2026, roughly 57% year-over-year (TrendForce).

How big is the optical networking / silicon photonics market?

The AI optical-transceiver market is forecast to rise from about $16.5 billion in 2025 to $26 billion in 2026 (TrendForce). The broader silicon-photonics interconnect market is projected to reach roughly $28.75 billion by 2034 (Precedence Research), with some estimates as high as $33.8 billion (Global Market Insights).

Why is AI driving demand for optical networking?

AI training links thousands of accelerators that must exchange data at enormous speed, and electrical links cannot keep up over distance, so each new generation of cluster needs more transceivers and faster speeds (800G, then 1.6T). Demand is outrunning supply: McKinsey projects 800G transceiver output falling 40-60% short of demand through 2027 (McKinsey & Company).

Which companies lead AI optical networking?

U.S.-listed leaders include Ciena (CIEN), Coherent (COHR), Lumentum (LITE), Marvell (MRVL), Corning (GLW), Fabrinet (FN), Applied Optoelectronics (AAOI), Arista (ANET), Credo (CRDO), and Broadcom (AVGO). The demand is showing up in results: Ciena reported fiscal-year 2025 revenue of $4.77 billion, up 19% year-over-year, with orders exceeding revenue, citing its expanding role in the AI ecosystem (Ciena Investor Relations).

What are the risks of optical networking stocks?

They are cyclical and high-beta, heavily exposed to a few hyperscalers and to Nvidia's roadmap, so revenue can be lumpy. Valuations are often rich, and shifts like co-packaged optics can reshuffle which suppliers win. The same supply tightness that lifts them (McKinsey sees 800G output 40-60% short of demand through 2027) can reverse if AI capex pauses (McKinsey & Company).

Is there an ETF for AI optical networking?

The Akros U.S. AI Optical Communication and Network Infrastructure Index is tracked by the KODEX US AI Optical Communication Network ETF, a Korea-listed fund. It targets the optical-interconnect suppliers behind a market forecast to grow from about $16.5 billion in 2025 to $26 billion in 2026 (TrendForce). Always check fees, holdings, and risk before investing.

How much of my portfolio should I put in optical networking stocks?

Treat it as a small satellite, not a core position, because the group is high-beta and tied to a capital cycle that swings hard: the AI optical-transceiver market is set to jump about 57% in a single year, from $16.5 billion in 2025 to $26 billion in 2026 (TrendForce). A long-horizon DIY investor who already holds AI chips often caps a single thematic sleeve like this in the low single digits of total assets, so a sharp pullback in hyperscaler capex dents but does not break the portfolio.

Does optical networking fit a conservative or income-focused investor?

Generally no. These are growth-cyclical names with little or no dividend, and revenue is lumpy because a few hyperscalers and Nvidia's roadmap drive much of the order flow. Even a leader like Ciena, with fiscal-year 2025 revenue of $4.77 billion up 19% year-over-year, carries order patterns that move in waves (Ciena Investor Relations). An investor who needs steady income or capital preservation is better served elsewhere, since the supply tightness lifting the group (McKinsey sees 800G output 40-60% short of demand through 2027) can reverse quickly (McKinsey & Company).

How does an institutional allocator size optical networking within an AI sleeve?

As a concentrated thematic-growth slice inside a broader AI or technology allocation, not a standalone mandate, because the investable universe is narrow and the names overlap with semiconductors and networking. The structural pull is the interconnect layer scaling with every accelerator: McKinsey projects 800G transceiver output falling 40-60% short of demand through 2027 (McKinsey & Company). Allocators typically right-size for high beta and customer concentration and accept tracking dispersion against the silicon-photonics interconnect market projected near $28.75 billion by 2034 (Precedence Research).

Sources & references

  1. Global AI Optical Transceiver Market to Reach US$26 Billion in 2026 · TrendForce, 2026-04-20
  2. Silicon Photonics Market Size, Share & Forecast (2026-2035) · Global Market Insights, 2025-10-01
  3. Silicon Photonics Market Size to Hit USD 28.75 Billion by 2034 · Precedence Research, 2025-11-01
  4. AI creates a new wave in demand for optical transceivers and accelerates LPO/CPO adoption · LightCounting, 2025-01-15
  5. Opportunities in networking optics: Boosting supply for data centers · McKinsey & Company, 2025-09-01
  6. Ciena Corporation · Fiscal Q4 and Full-Year 2025 Results · Ciena Corporation, 2025-12-11