The continued expansion of AI data centers has driven demand for high-speed optical communication components, which has also pushed up the price and industrial value of continuous wave laser (CW Laser) chips. Market research points out that as the optical communication architecture gradually shifts from traditional pluggable optical modules (Pluggable) to near-package optics (NPO) and co-packaged optics (CPO), the unit price of laser chips has shown significant differences. The price of some high-power products has reached US$50 to US$75 per unit, which is much higher than the past level of only US$0.2 to US$0.5 for communication laser chips.

Serenity November 10share AI Data Center's CW laser market analysis points out that this wave of industry changes is not only an increase in shipments, but more importantly, an upgrade in optical communication architecture, allowing laser suppliers to sell higher specification products and achieve higher average selling prices (ASP) and gross profit margins.

Optical communication architecture upgrades, laser chip ASP has a gap of several times to dozens of times

CW Laser (Continuous Wave Laser) is an important light source in optical communication systems. It is responsible for providing stable continuous laser output, and then converting electrical signals into optical signals through modulators for high-speed data transmission.

In an AI data center, GPUs, switches and other computing devices need to exchange large amounts of data. As transmission bandwidth continues to increase, traditional copper wires are gradually facing limitations in distance, signal loss and power consumption, and the importance of optical communication has also increased.

Among them, the value of CW Laser is increasing with the upgrade of power specifications and optical architecture. Serenity cited industry channel surveys and valuations from brokerages Nomura and Mizuho to sort out the prices of different products. Compared with the past, traditional communication laser chips cost about US$0.2 to US$0.5 each, and the price of high-power laser products has been dozens of times different.

This also explains why the investment logic of the optical communications industry is changing: the market no longer only focuses on the shipments of optical modules, but begins to focus on the value of optical components in a single system (Content per System).

In particular, NPO (Near-Packaged Optics) and CPO (Co-Packaged Optics) further integrate optical components with switch chips or computing chips, which is expected to increase the demand for high-power external light sources.

Taking CPO as an example, the light source can be provided through an external laser light source (ELS), so that the laser itself does not have to be placed in the same package as the high-heat switch ASIC, while maintaining the efficiency and reliability of optical transmission.

Coherent emerges as major beneficiary, $2 billion long-term deal provides demand visibility

Among related suppliers, Serenity believes that Coherent (NASDAQ: COHR) is a relatively ideal risk-reward choice at the moment, mainly because the company has secured quite specific long-term orders.

Coherent announced its financial results for the first quarter of fiscal year 2027 on November 4, announcing the signing of a five-year long-term supply agreement (LTA) with a total value of approximately US$20 billion with a large AI company, covering the PhotonLink integrated optical technology platform.

The company's CEO, Jim Anderson, revealed at the conference that this order is centered on 400mW CW Laser, but the actual supply content is not only laser chips, but also higher-level optical solutions, which are expected to start contributing to revenue in early 2028.

In addition, Coherent also established a multi-year strategic cooperation with NVIDIA in March this year. NVIDIA not only committed to purchasing billions of dollars in products, but also invested $2 billion to assist Coherent in expanding production capacity, research and development, and U.S. manufacturing layout.

In terms of financial performance, Coherent's first-quarter revenue reached US$2.37 billion, a year-on-year increase of 56%, and data center and communication business revenue increased by 79% year-on-year, showing that the demand for AI optical communications has been reflected in actual operations. The company also said that PhotonLink's revenue is expected to exceed $100 million in the March 2027 quarter and reach more than $250 million in a single quarter by the end of 2027.

The investment logic of four optical communication suppliers diverges

In addition to Coherent, Serenity also offered different views on three other public companies.

Coherent(COHR)

  • relatively robust
  • Has a $20 billion five-year LTA, and a multi-year partnership with NVIDIA.
  • The 400mW CW Laser is the core product of the new contract.
  • The advantage lies in order visibility and product portfolio upgrades, which is suitable for investors who do not want to bear too much execution uncertainty.

Lumentum(LITE)

Valuation and Transaction Risk

  • Business operations themselves still have positive momentum.
  • But Marvell announced on November 2 that it would acquire Lumentum in an all-stock deal, subjecting the stock price and valuation to the conditions of the merger.
  • The deal, for each Lumentum share to be exchanged for 4.5 Marvell shares, is expected to close in the first half of 2028.

Serenity believes that the current valuation is affected by M&A premiums and deal structure pressure, so its view on LITE has turned negative.

Applied Optoelectronics (AAOI)

High growth, high execution risk

  • Market demand visibility is extremely high, and Serenity estimates that the company may secure $5 billion to $7 billion in new long-term supply agreements in the short term.
  • The main issues are production execution capabilities and product supply chain bottlenecks.
  • The company's current business focus is on pluggable optical modules, and is subject to supply constraints of DSP and other components.
  • If a new large-scale LTA is subsequently announced, it may become an important catalyst for stock price recovery.

Sivers Semiconductors (SIVE)

Capacity expansion and certification risks

  • The company is actively expanding its laser production capacity with the goal of grasping the optical communication needs of AI data centers.
  • Serenity is particularly bullish on the potential revenue value from its capacity expansion.
  • However, there is still uncertainty about customer certification (Qualification) for new products, and whether it can successfully fill the production capacity gap is the key.
  • Even if the market is in short supply, if customer certification progress falls behind, new production capacity may not be immediately converted into revenue.

this article Serenity talks about four optical communications stocks: bullish on Coherent, turning negative on Lumentum first appeared in Chain News ABMedia。