The fund manager behind the highly successful DRAM ETF, which bombed the market in 2026, is launching a new product focused on photonics and optics for AI data centers. Roundhill Investments, which saw its storage-chip ETF (ticker DRAM) swell to nearly $25 billion in assets since its April debut, is betting that innovations in optical networking for AI data centers will ignite a wave of growth in photonic technology, creating another major investment theme.
Goldman Sachs forecasts that the total addressable market for optical communications could surge from roughly $15 billion to $154 billion by 2028, a more than nine-fold increase. Nvidia has already invested billions of dollars in several photonic technology companies. The new Roundhill Photonics & Optics ETF, trading under the ticker LYTE, is set to list on Thursday, making it the second ETF to target this specific AI niche, following the LAZR Photonics & Optics ETF launched by Tema ETF on June 30.
Roundhill's LYTE enters a market that many on Wall Street and in Silicon Valley believe has significant growth potential over the next several years, similar to the semiconductor sector. The photonics industry is entering a boom cycle as AI data center builders aggressively pursue optical network solutions. These solutions use light pulses in fiber optics to transmit data, replacing traditional electrical signals, and promise to overcome the physical bottlenecks of copper interconnects, offering faster speeds, higher energy efficiency, and longer transmission distances.
Where to start
Since March, Nvidia has committed at least $6.5 billion to photonic technology firms, including investments in companies like Coherent and Lumentum. Nvidia's next major GPU architecture, Feynman, is planned for 2028 and will shift core interconnects from copper to photonics, aiming to improve data center interconnectivity and networking capabilities. Nvidia CEO Jensen Huang has described photonic technology as the key to building "gigawatt-scale AI factories."
Forrester senior analyst Alvin Nguyen said earlier this year that photonics allows Nvidia to scale its AI infrastructure while avoiding the high energy costs of using electrical signals and copper. Marvell Technology, a data center chip maker, is also a key player in this space. Nvidia invested $2 billion in Marvell in March, as the company's chips focus on converting electrical signals to optical signals at the chip level, aligning perfectly with the goals of optical interconnects.
Why just 10 ASX 200 shares?
Goldman Sachs predicts the optical communications market could grow from $15 billion to $154 billion between 2026 and 2028. Publicly traded photonics companies have seen rapid market cap growth, with Lumentum's shares more than doubling year-to-date and Coherent and Nlight also seeing significant gains. Laser technology is also finding applications in medical, manufacturing, and defense, particularly in drone countermeasures.
Aerovironment CEO Wahid Nawabi said in April that the company's Locus next-generation directed-energy laser weapon can intercept drones at a very low cost, requiring just two to five seconds of laser exposure to take down a drone for under $10. LYTE's holdings have not yet been disclosed, but the top five holdings of LAZR are Lumentum, AXT, Anthropic, Aixtron, and Applied Optoelectronics.
While LAZR has attracted only about $18 million since its June 30 launch, Roundhill has a strong track record. Its DRAM storage ETF surpassed $10 billion in assets within just 10 days of trading. The company also manages the Generative AI ETF (CHAT) and the MAGS ETF, which provides equal-weight exposure to the "Magnificent Seven" tech giants, each with billions of dollars in assets.
Investing in LYTE carries significant risks. The AI sector has recently seen increased volatility, which has also impacted LAZR's fundraising. The growth prospects of photonic and optical companies are highly dependent on the continued expansion of AI computing infrastructure. Roundhill's LYTE prospectus warns that if the AI, data center, or high-end networking sectors experience a slowdown or disruption, the revenue and profitability of the fund's holdings could be materially affected.
ETF industry analysts believe the photonics sector has matured into a distinct investment theme. VettaFi research director Todd Rosenbluth noted that while thematic ETFs can be volatile, the long-term buildout of AI computing should provide a strong tailwind. He advises investors not to replace broad-based index funds with thematic ETFs like LYTE or LAZR but to use them as tactical additions to core holdings, often allocating around 10% of total assets to a few thematic ETFs.
Rosenbluth also cautioned against the lessons of the dot-com bubble, noting that investors must ensure diversification even when deploying multiple thematic strategies. The current AI boom is frequently compared to the tech bubble of the late 1990s, and it is crucial not to over-concentrate in any single niche.
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