MW Here's the next AI 'battleground' - and how investors can get in on the action
By Emily Bary
Lumentum's stock has been red hot, but there are plenty of lesser-known ways to capitalize on the growing connectivity needs of AI data centers, according to Bernstein
Data centers demand increasingly fast connections with low latency.
Big-name fiber and optoelectronics stocks have been among the hottest on the market this year, but investors who look below the surface can find a multitude of ways to play the boom in connectivity demand.
"Connectivity is the new bottleneck and battleground," Bernstein analysts wrote in a nearly 100-page report this week. It's a bottleneck in the sense that AI increasingly requires data to move at far higher speeds with lower latency, driving a supply shortage for the companies that make these connectivity products. And it's a battleground in the sense that there's heated debate on Wall Street over which technologies will win in the long run.
The Bernstein team, for its part, said that investors don't so much have to place bets on whether copper-based technologies win out over the newer but more unproven school of co-packaged optics. Nvidia (NVDA), for instance, is relying on both types of interconnects, "each optimized for different distance and power needs," according to the analysts.
"For investors, the focus is not which technology wins, but how each captures value across the supply chain and over what timeline," they added.
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More traditional copper technologies have been used for intra-rack connectivity within data centers, but they risk coming up against performance limits, according to Bernstein. Meanwhile, companies like Lumentum Holdings $(LITE)$ have been focused on co-packaged optics, which fuses optical technology with accelerated processors.
Adoption of the latter "faces meaningful obstacles, including manufacturing yield, test complexity, fiber coupling and cloud-service provider (CSP) concerns around serviceability and vendor concentration," the Bernstein team noted.
It may take time for the promise of co-packaged optics to prove itself out. That hasn't held back shares of Lumentum, Coherent $(COHR)$, Corning $(GLW)$ and others, however. Lumentum's stock rose 17% in Monday trading alone, and it ranks No. 5 among current S&P 500 SPX components on a year-to-date basis with its 186% gain. Coherent's stock gained 13% Monday and is up 106% so far this year. Corning's stock was ahead 11% on the day and 136% on the year.
"Optical is heading into ludicrous speed," Mizuho managing director for equity trading Daniel O'Regan said in a note to clients about Monday's trading action. "That move is dragging the rest of the space higher - in many cases for no real fundamental reason."
After Friday's close, Lumentum was announced as a forthcoming Nasdaq-100 NDX entry.
Read: Lumentum builds on its scorching stock rally after earning a spot in this hot index
The Bernstein team highlighted a number of supply-chain players that could cash in on the connectivity fervor. "For scale-up solutions," which refer to tacking on more accelerators within a node or rack, "copper will likely remain the mainstream over 2026-'28, and co-packaged copper (CPC) is likely to extend its lifecycle, benefiting players such as Luxshare," they noted.
When it comes to co-packaged optics, they point to Lumentum as well as a number of global companies. TFC (CN:300394) and Senko (JP:9069) could capitalize on demand for fiber array units, which hold fibers together. Chroma ATE (TW:2360), All Ring (TW:6187) and Teredyne $(TER)$ are all equipment-related plays on things like packaging technology, as well as the need to test components for viability.
"TFC has maintained a three-year partnership with Nvidia in the development of CPO technology and currently participates in three key segments," the analysts noted. Senko has collaborated with Nvidia and Marvell Technology $(MRVL)$.
Teradyne, on the other hand, "helps foundry customers to test the'known good die' (KGD) before wafers are diced and packed into CPO devices," the Bernstein team wrote.
See also: Optics is the next big AI bottleneck. This company could be an underrated beneficiary.
The analysts also discussed makers of Ajinomoto Build-up Film, or ABF substrate, which helps improve transmission in packaging. "Thanks to growing server demand and the increasingly complex design in computing chips, the demand for ABF substrate surged rapidly since 2018," the analysts said.
Beneficiaries include Taiwan's UniMicron (TW:3037), which could generate about half its revenue from AI end markets in 2026 and is an Nvidia partner. Additionally, Ajinomoto (JP:2802) gets nearly a third of its revenue from ABF film "and its tight R&D relationships with key chip designers represent a solid moat," the analysts said.
-Emily Bary
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May 11, 2026 16:59 ET (20:59 GMT)
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