Deutsche Bank Names Lumentum and Coherent Top AI Hardware Plays as Optical Demand Surges

The Quick Take

• Deutsche Bank named Lumentum Holdings and Coherent Corp its highest-conviction AI hardware picks as hyperscaler capital expenditure drives surging demand for optical networking components.
• Accelerating AI data center buildout is creating structural demand for optical transceivers and laser components that Deutsche Bank expects to outpace supply into 2027.
• Arista Networks and Cisco were also cited as infrastructure beneficiaries, though Lumentum and Coherent were flagged as the purest plays on AI data center optical interconnect spending.

Deutsche Bank's designation of Lumentum Holdings and Coherent Corp as top AI hardware picks reflects the investment bank's view that optical networking components — transceivers, laser diodes, and coherent optical modules — are the enabling layer for AI infrastructure that remains most supply-constrained relative to demand. As AI model sizes and inference traffic volumes grow, data centers require exponentially more optical interconnect bandwidth to move data between GPU clusters within and across facilities. Both Lumentum and Coherent supply components that sit at critical bandwidth bottlenecks in next-generation data center architectures, with limited near-term capacity expansion options given the specialized manufacturing required.

The hyperscaler capital expenditure cycle is the primary tailwind for both companies. Major cloud providers including Microsoft, Google, Meta, and Amazon are collectively investing over $300 billion annually in AI infrastructure, with optical interconnects representing a growing share of total data center capital expenditure as bandwidth requirements scale faster than capacity additions. Lumentum's strength in VCSEL-based laser components and Coherent's position in datacom transceivers and silicon photonics give each company distinct exposure to complementary parts of the optical infrastructure stack. Deutsche Bank's joint recommendation suggests both can coexist as beneficiaries rather than competing for the same design wins.

For investors, the Deutsche Bank thesis provides a useful entry framework: optical component companies with existing hyperscaler relationships and production capacity are better positioned than new entrants to capture near-term demand. Key metrics to monitor include quarterly revenue guidance revisions, design win announcements for 800G and 1.6T transceiver generations, and any commentary on lead times extending — longer lead times signal tighter supply and stronger pricing power. Risk factors include potential AI infrastructure spending slowdowns if hyperscaler ROI on AI infrastructure disappoints, and technology transitions that could commoditize current-generation optical components faster than expected.

Synthesized from 1 source.