GTC+OFC coming next week, will optical connectivity become a major theme in the market? Bank of America is optimistic about these stocks

Next week, NVIDIA’s highly anticipated GPU Technology Conference (GTC) is expected to showcase the company’s next-generation chip architecture. Meanwhile, another AI trend component will also be in focus—optical interconnects. This technology enables communication between GPU clusters, offering high bandwidth, low loss, and low latency.

In a research report released this Monday, Bank of America noted that as AI workloads demand higher performance from traditional copper conductors, the optical interconnect market is projected to grow fourfold to $73 billion by 2030.

BofA analyst Vivek Arya expects NVIDIA to lead this transformation and possibly become the first integrated system supplier to replace traditional copper-based server backplanes with CPO (co-packaged optics)—a shift that will bring optical-speed connections directly into processors.

Arya pointed out that chipmakers like NVIDIA and Broadcom are in an “annual iteration cycle of computing power,” which is “forcing the simultaneous upgrade of optical interconnect technology.”

Besides NVIDIA’s GTC, next week will also see the Optical Fiber Communications Conference and Exhibition (OFC), which is expected to provide the latest insights into the supply and demand environment for optical lasers and the progress of co-packaged optical device applications.

BofA is optimistic about these stocks.

Arya believes that although NVIDIA and Broadcom are “industry giants leveraging strategic integration of optical technology to optimize their product portfolios,” Marvell Technology and Macom Technology Solutions Holdings are more “pure” beneficiaries of this trend.

He noted that Marvell, with its involvement in both optical communications and custom chips, is highly favored, with a forward P/E ratio of 23 times, which is more attractive. Macom’s exposure to optical components like photodetectors and lasers is “undervalued,” and it boasts “higher quality” earnings and gross margins.

Additionally, last week, NVIDIA signed multi-year agreements with optical communications giants Lumentum and Coherent to purchase advanced laser and optical networking products. Lumentum and Coherent’s stock prices have surged 68.6% and 31.4% this year, respectively.

Currently, Arya holds a neutral stance on Lumentum and Coherent due to their high valuations, but he believes that market expansion and news from OFC could boost their earnings. His analysis indicates that by 2028, Lumentum’s earnings per share could reach $35.30—more than 50% above Wall Street’s consensus of $23.

It is worth noting that both Lumentum and Coherent are scheduled to be included in the S&P 500 later this month.

Arya also pointed out that traditional copper cable suppliers like Credo will continue to benefit from the wave of optical interconnect transformation. He believes Credo’s active electrical cables will play a “unique role,” offering a lucrative market opportunity worth billions of dollars. He wrote that Credo’s forward P/E ratio is 24 times, making it an “attractive investment target.”

Arya added that NVIDIA’s product roadmap has a “far-reaching impact” on the optical communications industry and warned that related stocks could experience volatility as a result.

Since the start of this month, Lumentum and Coherent’s stock prices have fallen 11.3% and 6.2%, respectively, while Macom’s has dropped 13.6%. Arya attributes this to investor repositioning and uncertainty ahead of next week’s exhibition.

“Despite the volatility, we expect all suppliers to achieve strong multi-year growth,” Arya wrote in his latest report.

(Source: Cailian Press)