Lumentum and Coherent Stocks: Nvidia Threat Overblown

The recent announcement by Nvidia at its GTC 2025 event in San Jose has sent ripples through the tech and data center industries. Nvidia's new silicon photonics switches, Spectrum-X and Quantum-X, promise to revolutionize AI architecture by scaling to millions of GPUs while significantly reducing power consumption. This development has sparked concerns about the competitive landscape and the potential impact on key suppliers like Lumentum and Coherent. However, a closer look at the situation suggests that the threat to these companies may be overblown.



The Technology and Its Implications

Nvidia's new switches are designed to connect millions of GPUs with 1.6 Tb/s port switches, using co-packaged optics (CPO) to improve electrical efficiency. This technology is a game-changer, reducing power consumption by 3.5 times compared to conventional pluggable transceivers. Jensen Huang, Nvidia's CEO, described the development as "really crazy, crazy technology," highlighting its potential to save data centers "tens of megawatts" of power.

The collaboration between Nvidia, Lumentum, and Coherent is crucial to this innovation. Lumentum is providing lasers for the Spectrum-X product, while Coherent is collaborating on silicon photonics. This partnership positions both companies as key players in the rapidly evolving field of silicon photonics, which is essential for the next generation of AI infrastructure.

Opportunities for Lumentum and Coherent

The adoption of silicon photonics and CPO technology by Nvidia is likely to expand the market for photonic components. Wupen Yuen, president of Lumentum’s cloud and networking technology business, noted that innovations lowering networking power consumption will support larger AI installations and accelerate the transition from copper to photonic interconnects. This increased demand could lead to higher revenue and market share for Lumentum and Coherent.



Lumentum's involvement in this cutting-edge technology could drive significant growth in its cloud and networking segment. For instance, Lumentum's net revenue for the fiscal fourth quarter of 2024 was $308.3 million, with the cloud and networking segment contributing $254.7 million, or 82.6% of total revenue. This segment's growth is expected to continue, supported by the increasing demand for photonic components in AI data centers.

Similarly, Coherent's collaboration with Nvidia on silicon photonics could enhance its market position and drive stock performance. The company's involvement in this innovative technology aligns with its strategic goals of expanding optical networking in data centers, which is a high-growth market.

Challenges and Competition

While the opportunities are significant, Lumentum and Coherent also face challenges. The development and deployment of silicon photonics technology are complex and require significant investment in research and development. Both companies will need to continue investing in R&D to stay ahead of the technological curve and meet the demands of their customers.

Additionally, as the market for photonic components expands, so will the competition. Lumentum and Coherent will need to differentiate their products and services to maintain their market leadership. This could involve further innovation, cost reduction, or strategic partnerships.

Conclusion

The collaboration between Nvidia, Lumentum, and Coherent on silicon photonics and CPO technology is poised to reshape the competitive landscape in the AI computing and data center industries. While there are challenges related to technological complexity and competition, the potential long-term implications for Lumentum and Coherent's stock performance are positive. The increasing demand for energy-efficient and scalable AI infrastructure will drive growth for these companies, making the threat from Nvidia's new technology appear overblown. Investors should view this development as an opportunity rather than a threat, as it positions Lumentum and Coherent at the forefront of the next generation of AI infrastructure.