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De-Clogging the Future: Why Photonics is AI's Ultimate Growth Engine
Key Takeaways
Photonics companies sell the picks & shovels to the AI revolution.
Demand is outpacing traditional copper wiring, allowing photonics to take center stage.
Market leadership is being validated by institutional and corporate action.
Understanding “Picks and Shovels” Investments
During the California Gold Rush of the mid-1800s, the term “picks and shovels” became prominent. In the case of the Gold Rush, picks-and-shovel plays included Levi ((LEVI - Free Report) ) jeans and, as the name implies, the tools for mining gold. Since the gold rush, pick and shovel plays have proven that they often make for gold miner optimal investments.
For instance, regardless of whether one gold miner or another struck it rich, each get-rich adventurer needs jeans and tools to even attempt to mine gold. More recently, discount stockbroker Robinhood (HOOD) is a perfect example of a pick-and-shovel play. The company and its stock have benefited tremendously because, regardless of whether specific stocks rise or fall, it makes money from payment for order flow.
Photonics: The “Picks and Shovels” of the AI Revolution
One relatively obscure technology is quickly becoming the pick-and-shovel investment opportunity of the artificial intelligence (AI) revolution: photonics. Photonics is the science of generating, controlling, and manipulating light (photons). As AI computing demands grow (which they will), traditional copper wiring for data transfer is becoming a bottleneck due to heat and speed constraints.
In the AI infrastructure cycle, investors first piled into semiconductor makers like NVIDIA ((NVDA - Free Report) ), then cooling/power systems. Currently, the biggest bottleneck in the burgeoning industry is network and communication speed. Regardless of how fast the chips are, if the optimal networks carrying the data are suboptimal, the system gets clogged. Companies such as Coherent ((COHR - Free Report) ),Lumentum ((LITE - Free Report) ), and Applied Optoelectronics ((AAOI - Free Report) ) manufacture the technology to de-clog AI networks.
The AI-Build Out Isn’t Slowing
One of the biggest misconceptions on Wall Street in 2026 is that AI spending is slowing. Although AI-related CAPEX spending is already unprecedented, according to Bloomberg research and guidance from hyperscalers like Alphabet ((GOOGL - Free Report) ) and Microsoft ((MSFT - Free Report) ), it’s only going to grow. CAPEX spending from the hyperscalers Microsoft, Alphabet, Amazon ((AMZN - Free Report) ),Meta Platforms ((META - Free Report) ), and Oracle ((ORCL - Free Report) ) is expected to jump from $390 billion in 2025 to $515 billion in 2026 and to a mind-boggling $729 billion in 2027!
Image Source: Carson Investment Research
Remember, unlike the hyperscalers, photonics stocks benefit from AI spending regardless of ROI on large language models like Gemini and ChatGPT.
Lumentum’s Earnings Are Expected to Soar
The key ingredient for a winning growth stock is robust top-and-bottom-line growth. Lumentum, for example, grew revenue by 65% and earnings-per-share (EPS) by a juicy 298% year-over-year. Meanwhile, Zacks Consensus Estimates suggest that the blistering growth will continue through 2027.
Image Source: Zacks Investment Research
Additionally, several Wall Street analysts tracked by Zacks have upped estimates, helping the stock earn a best possible Strong Buy rating.
Image Source: Zacks Investment Research
COHR, LITE Score the Coveted NVIDIA Investment
NVIDIA is not only the largest company in the world by market cap; it’s also the undisputed AI leader. Earlier this month, NVIDIA announced it will invest $2 billion each in photonic product makers Lumentum and Coherent. Beyond the cash injection, the investment underscores the importance of photonics in the growing AI ecosystem.
Photonics: Industry Tailwinds & Powerful Price Action
One of the best signs for investors occurs when multiple stocks in an industry rise in concert. The photonics industry is doing just that. Meanwhile, savvy investors understand that latching onto existing trends is often more optimal than searching for bargains. In other words, the easiest way for an investor to find the next stock to double is to look what already has. Each photonics stock has displayed extreme relative strength compared to the broader market. COHR has gained 529%, LITE has gained 1,152%, and AAOI has gained a staggering 3,433% over the past three years.
Image Source: Zacks Investment Research
AAOI: Power & Distance are Correlated
One of the most valuable lessons I learned while working for legendary growth investor William O’Neil is that “What often seems too high moves higher.” Following its earnings report, AAOI shares bolted 57% as volume turnover swelled to 359% above the 50-day norm.
Image Source: TradingView
Remember, power and distance are correlated. The robust price action in photonics stocks suggests that the move is still likely in its infancy. I would be a buyer of these names on pullbacks and consolidations.
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De-Clogging the Future: Why Photonics is AI's Ultimate Growth Engine
Key Takeaways
Understanding “Picks and Shovels” Investments
During the California Gold Rush of the mid-1800s, the term “picks and shovels” became prominent. In the case of the Gold Rush, picks-and-shovel plays included Levi ((LEVI - Free Report) ) jeans and, as the name implies, the tools for mining gold. Since the gold rush, pick and shovel plays have proven that they often make for gold miner optimal investments.
For instance, regardless of whether one gold miner or another struck it rich, each get-rich adventurer needs jeans and tools to even attempt to mine gold. More recently, discount stockbroker Robinhood (HOOD) is a perfect example of a pick-and-shovel play. The company and its stock have benefited tremendously because, regardless of whether specific stocks rise or fall, it makes money from payment for order flow.
Photonics: The “Picks and Shovels” of the AI Revolution
One relatively obscure technology is quickly becoming the pick-and-shovel investment opportunity of the artificial intelligence (AI) revolution: photonics. Photonics is the science of generating, controlling, and manipulating light (photons). As AI computing demands grow (which they will), traditional copper wiring for data transfer is becoming a bottleneck due to heat and speed constraints.
In the AI infrastructure cycle, investors first piled into semiconductor makers like NVIDIA ((NVDA - Free Report) ), then cooling/power systems. Currently, the biggest bottleneck in the burgeoning industry is network and communication speed. Regardless of how fast the chips are, if the optimal networks carrying the data are suboptimal, the system gets clogged. Companies such as Coherent ((COHR - Free Report) ), Lumentum ((LITE - Free Report) ), and Applied Optoelectronics ((AAOI - Free Report) ) manufacture the technology to de-clog AI networks.
The AI-Build Out Isn’t Slowing
One of the biggest misconceptions on Wall Street in 2026 is that AI spending is slowing. Although AI-related CAPEX spending is already unprecedented, according to Bloomberg research and guidance from hyperscalers like Alphabet ((GOOGL - Free Report) ) and Microsoft ((MSFT - Free Report) ), it’s only going to grow. CAPEX spending from the hyperscalers Microsoft, Alphabet, Amazon ((AMZN - Free Report) ), Meta Platforms ((META - Free Report) ), and Oracle ((ORCL - Free Report) ) is expected to jump from $390 billion in 2025 to $515 billion in 2026 and to a mind-boggling $729 billion in 2027!
Image Source: Carson Investment Research
Remember, unlike the hyperscalers, photonics stocks benefit from AI spending regardless of ROI on large language models like Gemini and ChatGPT.
Lumentum’s Earnings Are Expected to Soar
The key ingredient for a winning growth stock is robust top-and-bottom-line growth. Lumentum, for example, grew revenue by 65% and earnings-per-share (EPS) by a juicy 298% year-over-year. Meanwhile, Zacks Consensus Estimates suggest that the blistering growth will continue through 2027.
Image Source: Zacks Investment Research
Additionally, several Wall Street analysts tracked by Zacks have upped estimates, helping the stock earn a best possible Strong Buy rating.
Image Source: Zacks Investment Research
COHR, LITE Score the Coveted NVIDIA Investment
NVIDIA is not only the largest company in the world by market cap; it’s also the undisputed AI leader. Earlier this month, NVIDIA announced it will invest $2 billion each in photonic product makers Lumentum and Coherent. Beyond the cash injection, the investment underscores the importance of photonics in the growing AI ecosystem.
Photonics: Industry Tailwinds & Powerful Price Action
One of the best signs for investors occurs when multiple stocks in an industry rise in concert. The photonics industry is doing just that. Meanwhile, savvy investors understand that latching onto existing trends is often more optimal than searching for bargains. In other words, the easiest way for an investor to find the next stock to double is to look what already has. Each photonics stock has displayed extreme relative strength compared to the broader market. COHR has gained 529%, LITE has gained 1,152%, and AAOI has gained a staggering 3,433% over the past three years.
Image Source: Zacks Investment Research
AAOI: Power & Distance are Correlated
One of the most valuable lessons I learned while working for legendary growth investor William O’Neil is that “What often seems too high moves higher.” Following its earnings report, AAOI shares bolted 57% as volume turnover swelled to 359% above the 50-day norm.
Image Source: TradingView
Remember, power and distance are correlated. The robust price action in photonics stocks suggests that the move is still likely in its infancy. I would be a buyer of these names on pullbacks and consolidations.