Nvidia's Next Trillion-Dollar Opportunity May Be AI Networking, Not GPUs

Keysight Technologies executives said AI data-center buildouts are driving demand that currently exceeds supply, with revenue pushed beyond the company's typical six-month order-to-revenue window approaching $100 million. Speaking at a Truist investor conference, Chief Financial Officer Neil Dougherty said quarterly revenue has climbed from $1.6 billion in the first quarter to guidance of $1.94 billion for the fourth quarter, and that Keysight is adding internal capacity, raising capital expenditures, signing longer-term supplier agreements and qualifying second and third sources to ease constraints. Kailash Narayanan, senior vice president and president of Keysight's Communication Solutions Group, said the biggest contributors to AI-related business are speed transitions and system-level emulation, with traction in 1.6T technology and research already underway on 3.2T, silicon photonics and co-packaged optics. Keysight expects its 6G business to inflect in the first half of 2028, ahead of expected commercialization in late 2029 and 2030, while its U.S. aerospace and defense business has expanded at a strong double-digit rate and Europe is growing faster from a smaller base. Dougherty said the company expects incremental margins at or above its 40% target when growth exceeds 5%, and that three acquisitions completed near the start of the fiscal year are now integrated and expected to provide roughly $50 million in cost synergies next year; Keysight held $2.6 billion in cash at quarter-end and has repurchased more than $500 million of stock year to date.

Coherent Corp. announced on September 17 an upgraded Pluggable Optical Line System that covers the full C-band and fits in a compact QSFP module, the same slot ordinary transceivers use. The system can pack 32 wavelengths onto a single pair of fibers, which Coherent says adds up to as much as 25.6Tbps of traffic on links running 2km to 200km, and it is designed for the latest 800G coherent optics. Coherent says the system is generally available and already shipping in high volume, in 400G and 800G versions that work with existing network setups, according to Madhu Krishnaswamy, who runs the company's telecom transport unit. The launch follows Coherent's fiscal fourth quarter, which ended June 30, when it reported revenue of $2.05 billion, up 34% from a year earlier, and non-GAAP earnings per share of $1.74, up from $1.00. Management guided to revenue of $2.2 billion to $2.4 billion for the first quarter of fiscal 2027, though the announcement puts no sales figure on the new product, so its contribution to a company that booked $2.05 billion in a quarter cannot be sized from what has been published.

Nvidia has committed at least $6.5 billion to photonics companies over the three months prior to May 2026, including $500 million to Corning for advanced optical connectivity solutions and $2 billion each to Lumentum, Coherent and Marvell, according to CNBC. The impact has been significant, with Marvell shares gaining 183.4% year to date, while Lumentum, Corning and Coherent have advanced 142.5%, 68.8% and 60.3%, respectively. Goldman Sachs projects the total addressable market for optical networking to grow from roughly $15 billion in 2026 to about $154 billion by 2028, a more than ninefold increase. Adoption of co-packaged optics is expected to accelerate starting in 2027, reaching roughly 20% to 30% penetration by 2028, while Mordor Intelligence estimates the global photonics market will reach $1.46 trillion by the end of 2026. Investors seeking diversified exposure can consider the Roundhill Photonics & Optics ETF LYTE, with $254.2 million in assets under management across 19 holdings; the KraneShares Photonic and Optical ETF LUMA, with $9.76 million in net assets; and the Tema Photonics & Optical ETF LAZR, with $94 million in net assets across 27 companies.