Photonics and silicon photonics

Core thesis

As AI clusters scale, the bandwidth between chips outruns what copper can carry; co-packaged optics (CPO) bonds the optical engine into the switch or accelerator package and removes the electrical-reach wall. That makes optical interconnect the third constraint on the AI build-out, after power and silicon. The non-obvious part is where the value lands. Nvidia has funded rival laser makers (Lumentum, Coherent) and a fibre maker (Corning) on non-exclusive terms - commoditising the inputs it can fund a second source in. The one layer it cannot fund a rival in is the leading-edge silicon-photonics integration process, TSMC's COUPE, the optical analogue of CoWoS. So the optics suppliers win volume and a competed-down margin; the scarcity premium sits with the process holder.

The live leg is interconnect, not compute

Two legs, different clocks. Optical interconnect - co-packaged optics and optical I/O moving data between conventional silicon chips - is crossing to volume now because copper's electrical reach fails as switch-ASIC bandwidth doubles every 18-24 months. Optical computing - matrix multiply in the photonic domain - remains demonstration-stage. The capital, the deployment, and the value are all on the interconnect side; betting on photonic accelerators is betting on the wrong leg.

State of the art (2026)

CPO has cleared its last technical objection: Broadcom reported a million flap-free port device-hours at Meta (Oct 2025) with ~65% lower power than pluggables, and Meta presented extended reliability data at OFC 2026. Volume CPO arrives first at the switch tier - Nvidia's Quantum-X (early 2026) and Spectrum-X (H2 2026) photonics switches and Broadcom's Tomahawk 6 - Davisson, all on TSMC COUPE. Scale-up GPU-to-GPU optical (NVLink-class) is the later, bigger prize; pluggable and linear-drive optics still carry most ports near-term. Optical computing - matrix multiply in the photonic domain - remains demonstration-stage and is held separately at low conviction.

Commoditised inputs, one un-commoditised tier

Nvidia funded rival laser makers (Lumentum, Coherent) and fibre (Corning) on non-exclusive terms - the move that commoditises an input so no supplier wins HBM-style pricing power. The laser and fibre names (COHR, LITE, GLW) therefore get the volume of the build-out and a competed-down margin, not a scarcity premium. The one tier no one multi-sources is the silicon-photonics integration process - TSMC's COUPE, the optical analogue of CoWoS - and that is where any surviving rent sits, with the process holder, not with the buyer that rents it. The buyer captures value only where it in-houses the integration (Quantum-X, Spectrum-X on COUPE), a narrower and separate claim from multi-sourcing the inputs.