NVIDIA Buys Into Optics: When Optical Communications Goes From Growth Stock to Index Heavyweight (2026 W26)

2 days ago

5 min read

Two things happened in optical communications this week: NVIDIA put $2B directly into upstream lasers, and TrendForce raised its CPO market forecast 4x in one go. Capital is no longer waiting on the sidelines; it is placing bets.

Introduction

On June 16, NVIDIA and Coherent broke ground on the expansion of a 6-inch indium phosphide (InP) wafer fab in Sherman, Texas. Groundbreakings usually only make the local paper, but this one is different: the land belongs to Coherent, and that same week NVIDIA announced a $2B equity investment in the company, plus a multi-year purchase commitment for lasers and optics.

For the past two years, the market has kept asking the same question: where exactly is the bottleneck in AI compute? The answer has gradually shifted from "not enough GPUs" to "GPUs can't talk to each other fast enough." Optical interconnect has moved from supporting role to lead, and this week's signal is that even NVIDIA no longer wants to wait for the supply chain to grow at its own pace; it wants to buy the critical piece outright. This piece asks: when the biggest buyer reaches upstream and index providers start adding optical companies to their benchmarks, has the industry's "capital structure" quietly shifted into a new gear?

1. NVIDIA Buys Into Optics: Getting Ahead on Vertical Integration

Starting point: the investment and the groundbreaking in the same week

The week's biggest story was NVIDIA's $2B strategic investment in Coherent, together with a multi-year purchase commitment for laser and optical products (Source: NVIDIA Blog). Before the money had fully landed, the shovels were already in the ground: on June 16, Coherent officially broke ground on the expansion of its 6-inch InP wafer fab in Sherman, Texas, a roughly $650M project backed by $50M in CHIPS Act funding and expected to add about 1,000 jobs (Source: Construction Review, NVIDIA Blog).

Evidence: InP capacity set to quadruple

The keywords for this fab are "6-inch" and "4x." InP is the lifeblood material of high-speed lasers, but it has long been stuck on small 4-inch wafers, straining both yield and cost. Coherent plans to quadruple InP capacity at the Sherman site, feeding directly into the lasers and transceivers needed inside NVIDIA's photonic networking switches (Source: Construction Review). The same week, NVIDIA confirmed that its Spectrum-X Photonics CPO switch will launch in the second half of the year, with 409.6 Tb/s of switching capacity per system, integrating co-packaged optics (CPO) directly into the ASIC package (Source: NVIDIA Networking).

Interpretation: the buyer becomes a shareholder, and the balance of power in the supply chain shifts

Connect the dots and NVIDIA's move is not a financial investment; it is supply insurance. If you expect the scarcest thing over the next three years to be "enough, cheap enough InP lasers," the rational move is not to queue up with orders but to take equity, lock in capacity, and subsidize fab expansion. What does this mean for the rest of the supply chain? For Coherent, it is a structural lead: with a major customer's backing and capital, its 6-inch head start becomes self-reinforcing. But for laser suppliers like Lumentum, customer concentration becomes the risk to watch next week: when the biggest buyer favors one vendor, does everyone else's pricing power get squeezed? On the Taiwan side, FOCI (3363), TSMC's only optical communications partner in its silicon photonics chain, has already won NVIDIA CPO orders and plans volume production in 2026 (Source: Business Next), making it one of the few names able to ride this vertical integration wave.

2. Indices and Valuations Re-rate Together: Optics Is Leaving the "Growth Stock" Bucket

Starting point: two names join major indices on the same day

If the first thread is a signal from the industry side, the second is confirmation from the capital side. On June 22, Marvell joined the S&P 500 and Astera Labs joined the Nasdaq-100 on the same day (Source: TechTimes, TIKR). Two bellwethers of high-speed connectivity entered major index constituent lists simultaneously.

Evidence: passive money now "has to buy"

Index inclusion is not an award; it is a change in capital structure. Once a stock enters the S&P 500, passive funds tracking the index worldwide "must" buy it by weight, a source of demand decoupled from fundamentals. Marvell is up about 260% year-to-date in 2026; its next-fiscal-year CPO revenue target has been raised from $150M to $300M, and together with Tower it has shipped more than 5 million coherent PICs (Source: TIKR). Astera Labs jumped about 11% in a single day in its inclusion week, with Q2 revenue guidance of $355-365M and gross margin around 73% (Source: SEC 8-K, TradingKey). Meanwhile, on June 15 TrendForce raised its CPO/NPO market forecast from about $100M in 2025 to more than $39B by 2030 (Source: TrendForce), far above Morgan Stanley's earlier estimate of about $9.3B. Within a year, the consensus size of the same market has been inflated 4x.

Interpretation: when a theme becomes an index heavyweight, the source of volatility changes

The real takeaway from this thread is not "the stocks went up" but "the people holding these stocks have changed." Optical communications used to be bought by active money chasing growth and able to stomach high volatility; now there is an added layer of passive money buying because of index weights. The upside is a firmer floor and better liquidity; the cost is that these companies will now be judged by heavyweight standards, and any guidance miss will see its correction amplified by index leverage. The gap between $39B and $9.3B is also a reminder that market consensus on "how fast optical interconnect penetrates" has not converged, and that gap is the biggest expectations-management risk over the next two years.

3. Other Signals Worth Tracking This Week

Broadcom (AVGO): Q2 FY26 revenue, operating income, and free cash flow all hit records; it is pursuing its third-generation 200G/lane CPO alongside the Taurus 1.6T pluggable DSP, effectively hedging by betting on both CPO and pluggables (Source: SEC 8-K, SDxCentral).
Credo (CRDO): FY26 revenue tripled and net income grew more than 5x; FY27 guidance calls for revenue growth above 80% with optical products contributing more than $600M, formally moving from an AEC-only business to a dual "AEC + optics" engine (Source: Yahoo/Zacks).
Fabrinet (FN): FY26 Q4 revenue guidance of $1.25-1.29B, another record, confirming that 1.6T modules have entered their volume ramp (Source: SEC 8-K).
TSMC COUPE: enters volume production in 2026 and is integrated into CoWoS, claiming 5-10x better energy efficiency and 10-20x lower latency, roughly 3 years ahead of Samsung's silicon photonics turnkey offering targeted for 2029 (Source: TrendForce).
China's "Yi-Zhong-Tian" trio: Innolight, Eoptolink, and TFC Communication are pursuing Hong Kong H-share listings; Eoptolink's 2025 revenue reached RMB 24.842B, up 187% YoY, making it the most direct competitor to Taiwanese suppliers for 1.6T orders (Source: 21st Century Business Herald, Securities Times).

Conclusion and What to Watch Next Week

This week's takeaway is clear: the optical communications script has flipped from "will it happen" to "who can secure capacity." NVIDIA used $2B to tell the market that AI's next bottleneck is in optics, and that the fix is scarce enough to justify taking a stake upstream itself; index providers used their inclusion lists to tell the market that this theme is now big and stable enough to be filed away as an index heavyweight.

But what really needs watching is the gap. Between TrendForce's $39B and Morgan Stanley's $9.3B lies the industry's disagreement over "how fast CPO actually penetrates"; and the arrival of passive money will make any pullback after an earnings miss more violent. Next week's focus is on two things: whether Fabrinet's FY26 Q4 results (quarter ended 6/26) bring another upward revision, a real-time thermometer for the 1.6T ramp; and whether, after NVIDIA's stake, Lumentum and other laser suppliers show the first signs of loosening customer diversification. Now that the buyer has become a shareholder, the reshuffling of power in this supply chain is only just beginning.

This article is for technology and industry trend analysis only and does not constitute investment advice.

STT Market Insights | June 22, 2026 | Compiled by the STT editorial team