“The Bottleneck Isn’t the Chips Anymore”: Goldman Sachs Says These Are AI’s Next Big Winners
A Goldman Sachs executive says the AI trade is quietly shifting away from chips toward optical and fiber equipment, and two companies that just posted record quarterly revenues are already racing to fill a supply gap that could take years…
Goldman Sachs Asset Management’s Sung Cho, co-head of public technology investing, argues the AI trade is rotating away from the graphics processor cycle toward the companies that wire AI together: optical and fiber equipment makers. Cho laid out that view in an August 10, 2026 interview with CNBC, and all of his comments below are drawn from that appearance. His picks: Lumentum (NASDAQ:LITE | LITE Price Prediction) and Coherent (NYSE:COHR).
Cho’s case starts with a shift in workload mix. “One of the most important trends that we’re seeing in the market today is the shift from AI training, driving most of the compute, to AI inference, driving most of the compute,” he said. “Underneath that architecture is a completely different set of architecture, a completely different set of chips, optical equipment. And so the leadership is going to evolve and change as this transition happens.”
Why Connectivity Is the New Constraint
The physical footprint of AI changes with inference. As Cho told CNBC, inference workloads require far more data centers positioned closer to end customers, which means “we’re just going to have to connect a lot of data centers.” Inside those buildings, the wiring becomes the ceiling. “What’s happening is that compute speeds, the processor speeds are no longer the bottleneck. What the bottleneck is, is actually the ability to be able to have chip to chip communication, server to server communication. And right now, a lot of those connections are happening via copper. And that’s going to be replaced by optical as well,” he added.
The supply-side setup is what gives the trade its duration. “One of the unique aspects of optical is that it’s extremely hard to bring new capacity online,” Cho said. “The demand for optical and fiber is moving at an accelerating rate as a result of this transition. But the ability for the industry to bring capacity online is going to be somewhat limited and keep that duration of that trade.” As of the article’s original publication, a semiconductor ETF had gained roughly 80% year to date while trading about 20% below its 52-week high, illustrating how the chip-hardware trade had already begun to tire even as optical infrastructure demand accelerated.
Lumentum: Margin Expansion Backing the Story
Lumentum’s fiscal Q3 2026 report, filed May 5, 2026, first validated the thesis. Revenue reached $808.4 million, up 90.1% year over year, with non-GAAP EPS of $2.37 and non-GAAP operating margin expanding 700 basis points sequentially to 32.2%. CEO Michael Hurlston highlighted an optical circuit switch backlog above $400 million and a multi-hundred-million-dollar co-packaged optics order slated for delivery in the first half of calendar 2027. Details are in the company’s 8-K filing.
The momentum accelerated sharply in fiscal Q4 2026, reported on August 11. Revenue more than doubled year over year to $1.01 billion, up 109.3% from $480.7 million, beating the $987.70 million consensus estimate by nearly $19 million. Non-GAAP EPS came in at $3.23, an 8.8% beat against the $2.97 forecast, and represented a 267% jump from the year-ago quarter. Non-GAAP gross margin crossed 50% for the first time, reaching 50.4%, while non-GAAP operating margin expanded to 36.6%. Hurlston flagged that Q4’s results showed “broad-based traction” with optical circuit switch and cloud module businesses beginning to layer in meaningfully. Looking ahead, management guided Q1 FY2027 revenue to a midpoint of $1.25 billion, which would reach the company’s long-term target model more than a quarter ahead of schedule. Full-year FY2026 net revenue totaled $3.01 billion.
Coherent: Scaling Capacity to Meet AI Demand
Coherent, an S&P 500 constituent, had already posted strong Q3 FY2026 numbers before its own blowout quarter arrived. Q3 revenue was $1.81 billion, up 20.5% year over year, with the Datacenter and Communications segment contributing $1.36 billion, up 40.6% and now representing 75% of total revenue. Non-GAAP EPS was $1.41 and non-GAAP operating margin was 20.3%.
Then came Q4 FY2026, reported on August 12. Coherent posted record quarterly revenue of $2.05 billion, its first $2 billion quarter, up 34% year over year on a reported basis and 42% on a pro forma basis. Non-GAAP EPS of $1.74 beat the $1.43 consensus by $0.31, and data center revenue accelerated to 66% growth year over year in the quarter. For the full fiscal year 2026, revenue reached a record $7.12 billion, while non-GAAP EPS rose 59% to $5.61. CEO Jim Anderson noted that customer orders now extend into calendar 2028, giving the company unusual visibility into future demand. NVIDIA’s $2 billion investment anchors a partnership focused on laser and optical networking hardware, with new product lines such as co-packaged optics, optical circuit switches, and multi-rail solutions collectively adding more than $20 billion in incremental serviceable addressable market by calendar 2030.
What to Watch Next
Sell-side positioning has grown more bullish since the article’s original publication. Lumentum now carries 17 strong buy and 5 buy ratings from analysts tracked by S&P Global, with an average price target of roughly $1,179. Coherent shows 2 strong buys and 16 buys from the 23 analysts tracked by MarketBeat, with an average target of $383. Both companies report next in early November 2026. The key variables to monitor are InP capacity ramp schedules, co-packaged optics order flow into calendar 2027, whether hyperscaler capital spending holds through the inference build-out Cho describes, and whether Lumentum’s Q1 FY2027 guidance materializes at or above its $1.25 billion midpoint.
Editor’s note: This article has been updated to incorporate Q4 FY2026 earnings results for both Lumentum (revenue of $1.01 billion, up 109.3% year over year; non-GAAP EPS of $3.23) and Coherent (revenue of $2.05 billion, up 34% year over year; non-GAAP EPS of $1.74, with full-year FY2026 revenue reaching a record $7.12 billion), and to refresh analyst consensus ratings and price targets for both companies as of late October 2026.
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AJ spent 10 years writing about financial markets at The Motley Fool. His coverage centers on technology stocks and the broader macroeconomic trends, from interest rates to geopolitics, that shape where markets are headed next. AJ is drawn to the stories where big-picture economics and individual companies collide.
