Nvidia (NASDAQ:NVDA | NVDA Price Prediction), along with the broader semi scene, is bouncing back again. It’s right back in the $5 trillion club again, but whether the GPU giant is ready to make a run for new highs remains the $6 trillion question. Indeed, it feels too early in the AI race to call a peak in the “picks and shovels” plays, especially with more huge earnings results up ahead.
As Nvidia collides with greater competition, with hyperscalers looking to innovate on custom silicon while hoping to take some of the heat away from GPUs, I do think that the firms Nvidia set its sights on are becoming increasingly exciting areas to put new money to work.
Will the AI race be won at the speed of light?
While other investors look for the “next Nvidia” or “next DRAM” for a shot at quick, outsized gains, I think it pays more attention to look at what Nvidia’s top boss, Jensen Huang, is investing in. Of course, Nvidia has made so many deals in the past year, and as circular (or dismissible if you’re an AI skeptic who thinks semis are in a bubble) as they might seem, I do think that it’s hard to bet against the firms that Jensen Huang has been betting on.
Indeed, the optical connectivity plays may very well represent the next major chokepoint of the AI revolution. Arguably, it already is, as firms look to move into photonics, leaving copper and the so-called “copper wall” behind.
In my view, the “copper wall” might be one of the bigger hurdles that gets in the way of the top racers sprinting down that AI racetrack. And it’s the firms that are able to get aboard the leap faster than the rest of the pack that I think will gain a considerable edge in that road to superintelligence, where the second or third place finishers might not be all too happy with the returns on investment.
The Big Three optical connectivity darlings
In any case, Coherent (NASDAQ:COHR), Lumentum (NADSAQ:LITE), and Corning (NYSE:GLW) have really picked up traction in recent years, but with the latest pullback in the names, I think there could be an opportunity for dip-buyers to consider nibbling into a position now that some of the froth has been taken right off the top.
On the surface, each name still looks wildly expensive, even after the latest plunge into a bear market. Despite the recent market jitters, Wall Street pros still seem to be pounding the table.
With Street-high targets of $465 on Coherent (44% gain from here), $1,300 on Lumentum (62% gain), and $270 on Corning shares (42% gain), it’s clear that analysts aren’t all too rattled by the market’s recent action.
The wind remains at the back of these optical connectivity plays, and as long as AI demand stays robust while buildouts keep moving forward, Nvidia’s big optical connectivity bets might be significant winning bets that, once again, Jensen Huang’s firm spotted early in the game.
Of course, time will tell how the Nvidia-backed darlings fare, especially once rates increase, but, for the most part, I wouldn’t want to bet against the rise of the photonics plays. Whether you choose to bet on the glass fiber with Corning, optical transceivers with Coherent, or optical switches with Lumentum, I do think that each firm could keep rising in the market cap ranks from here, even with the latest setback.
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