Lumentum Sees AI Data Centers Driving Major Optical Connectivity Growth

Lumentum Sees AI Data Centers Driving Major Optical Connectivity Growth

AI-driven bandwidth growth is accelerating the shift from copper to optical connectivity in data centers, as copper’s reliable range falls sharply at 1.6T and higher speeds. Optical circuit switches, NPO/CPO technologies and scale-across fiber links are emerging as major growth opportunities, with Lumentum saying its previous $8 billion OCS market estimate may be significantly understated. Lumentum is expanding manufacturing capacity to meet earlier-than-expected demand for lasers and optical engines, while its Cloud Light module business has recovered to more than $200 million in quarterly revenue; supply constraints and potential U.S. restrictions on Chinese transceivers remain key risks.

Lumentum NASDAQ: LITE CEO Michael Hurlston said the growing bandwidth requirements of artificial intelligence data centers are accelerating a shift from copper connections to optical technologies, creating new demand across racks, clusters and data centers. Speaking at Deutsche Bank’s 20th Annual Tech Conference, Hurlston said copper’s effective reach declines as connection speeds rise. At 800G, he said, copper can reliably carry signals for roughly 10 meters, while at 1.6T its reliable range falls to approximately two to three meters. Many links within data-center racks and clusters exceed those distances, he said.

“As these speeds go up, you go from 800G to 1.6T, eventually we are going to go to 3.2T, the presence of copper and the technical aspects of copper become more and more difficult to make work,” Hurlston said.

Optical Switching Opportunity Expands Hurlston highlighted optical circuit switches, or OCS, as a major growth opportunity. He said customer engagement for OCS is broad and extends beyond Google, despite investor perceptions that Google is the principal user of the technology. 3 Photonics Companies Making Quantum Tech Possible OCS can be deployed inside a rack to route traffic around overloaded or failed graphics processing units and tensor processing units, Hurlston said. He noted that hardware failures can be especially problematic when large compute models involve tens of millions of dollars in compute time. The company’s largest customer has substantially increased orders since Lumentum’s most recent earnings call, according to Hurlston. He said stronger OCS demand and the product’s margin profile supported Lumentum’s updated fiscal 2028 earnings-power target of $40. Lumentum had previously cited an $8 billion total addressable market for OCS, but Hurlston said that estimate now appears “significantly under called.” He attributed expanding interest to OCS’s power and loss advantages relative to electrical switches. “We think this will be one of the largest growth drivers in the company,” Hurlston said.

Scale-Up, Scale-Across and Optical Engines Hurlston said co-packaged optics, or CPO, and near-packaged optics, or NPO, represent the company’s largest near-term opportunities. He argued the technologies should not be viewed as mutually exclusive or as a threat to the broader optics industry. In CPO designs, the optical engine is placed on the same substrate as core computing hardware, such as a switch or GPU. NPO places the optical engine separately from the principal compute or switch substrate. Hurlston said NPO is currently expected to represent a larger opportunity than CPO in the near term because some customers are adopting optical lanes at a higher rate. Lumentum sees opportunities to supply high-powered lasers and external light sources, or ELS, to these architectures...