Key insights
- Rosenblatt predicts optical component supply will trail AI data center demand by 50% through 2030, despite significant production expansion. This persistent shortage, driven by complex Indium Phosphide wafer manufacturing, highlights a strong secular growth trend for AI infrastructure. Companies like Coherent and Applied Optoelectronics are specifically noted for potential near-term gains due to increased capacity and market share opportunities, suggesting a bullish outlook for key players in this specialized tech sector.
Investing.com -- Optical component manufacturers are expected to expand production capacity by approximately 12 times between 2025 and 2030, yet supply will remain roughly 50% below demand through the end of the decade, according to Rosenblatt’s proprietary supply and demand model.
The analysis focuses on companies producing Electro-Absorption Modulated Lasers and Continuous Wave lasers for optical transceivers, including Lumentum (NASDAQ:LITE), Coherent (NYSE:COHR), Broadcom (NASDAQ:AVGO), Sumitomo, Mitsubishi, and Applied Optoelectronics (NASDAQ:AAOI).
These components are manufactured using Indium Phosphide wafers, which cost thousands of dollars per 6-inch wafer due to the rarity of indium and manufacturing complexity. This represents orders of magnitude more than typical silicon 12-inch wafers used in computing applications. Most InP manufacturing currently occurs on 2-inch, 3-inch or 4-inch wafers, though 6-inch production has recently increased.
Optical components enable the distributed architecture of AI computing systems by creating xPU clusters within and across data centers. Supply of InP-based Datacom components was approximately 50% behind demand at the end of 2025.
Rosenblatt’s base case scenario assumes Co Packaged Optics production will build in the second half of 2027 with shipments in 2028. The firm noted potential timing challenges across the supply chain, including wafer, test and measurement, DSP, PIC, and laser capacity. Any delay beyond current expectations would likely create buying opportunities in industry leaders, the firm said.
For near-term opportunities, Rosenblatt highlighted Coherent for expected revenue acceleration and gross margin expansion driven by increased laser production on 6-inch wafers affecting 800G and 1.6T transceiver sales. The firm also cited Applied Optoelectronics as positioned to grow market share to nearly 10% from under 5%.
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