Summary:
Our AI Investor Podcast hosts, Eric Bleeker and Austin Smith, have been counting down 12 trends they believe AI investors will want to keep an eye on in 2026.
Recently, the two discussed the ongoing growth of the optics industry. Optical interconnects are becoming increasingly important as data centers expand because traditional copper solutions are limited by distance, data rate, and thermal constraints. This is why companies like Lumentum, Coherent, and Finisar have already seen strong gains and remain core investments in this space. Other companies, such as Sienna and Applied Optoelectronics, also contribute to the sector’s growth potential.
“When I look at an industry that could have incredible pricing power because they can’t meet demand, optics exists in that space,” says Bleeker. “The challenge of interconnecting all these data centers is so great that previous solutions won’t be reliable at the scale needed for the future.”
Bleeker suggests that investors could explore both primary and secondary plays within the industry, while cautioning that some memory stocks, like SanDisk, may carry higher long-term risk. He and Smith agree that the sector is still in the early stages of its growth cycle, making it an attractive area for investment.
Transcript:
Austin: So our final trend optics, listeners of this pod have heard you talk about this a lot. I don’t think we need to explain it anymore, but why is this trend continuing like this? This does not seem to be a spent trend as far as you’re seeing it.
Eric Bleeker: Yeah, you know, we allude to it if someone wants to catch up on optics. The episode to listen to is March 28th of last year. The title of that episode is I’ve Got Right Here. These Optical Stocks Could Be Set to Ride an AI Supercycle. The main stocks we discussed on that podcast were Lumentum (NASDAQ: LITE), Coherent (NASDAQ: COHR), and Finisar. We’ve recommended all three and purchased them since the day of that podcast. Momentum is up 595% for Lumentum, 249% for Coherent, and 129% for Finisar. We also have stocks in the portfolio like Sienna and Applied Optoelectronics.
The big reason is the interconnect issue. The future will have millions of processors, whether GPUs or TPUs, in a data center network, and you need interconnects between chips. Historically, that’s been done with copper. It’s extremely cost-effective, but copper has data rate and distance limits, and we’re rapidly approaching a situation where it won’t scale.
Austin: It also has thermal challenges.
Eric Bleeker: Yeah, it’s cost-effective, but one of the areas where optics has been historically non-cost-effective, its cost curve is coming down. Solutions for copper like Credo in the portfolio are hitting limits as you scale for next-generation data centers.
The question is: what’s the next bottleneck? Momentum’s earnings call said they are already unable to meet customer demand by 30%. This is before co-pack optics takes off and before a lot of orders come in for next-generation data centers.
When I look at an industry that could have incredible pricing power because they can’t meet demand, optics exists in that space. The challenge of interconnecting all these data centers is so great that previous solutions won’t be reliable at the scale needed for the future.
We’ve recommended a lot of stocks in this sector and could add secondary plays. We’ve also talked about memory stocks, like SanDisk (NASDAQ: SNDK), though they might be a little too risky long-term depending on industry dynamics. Many companies supplying this industry may be fantastic investments.
That’s how we’re looking at optics right now. We brought this up alongside memory as two of our biggest trends in early 2025. Both worked out phenomenally, and I still think there’s a lot of growth here. Especially optics – it feels like it’s only in the first or second inning of its journey.
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