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Special Report 2 Lesser-Known Photonics Firms May Play an Outsized Role in AISubmitted by Nathan Reiff. Publication Date: 3/25/2026. 
Key Points - In early March, NVIDIA made a key investment of $2 billion each in two photonics firms, sparking renewed interest in this lesser-known technology that could have big implications for AI.
- Coherent was one of the beneficiaries of NVIDIA's investment, with momentum supported by production increases, data center business growth, and more.
- Nova is another company operating adjacent to these firms that has benefited from surging demand from semiconductor makers.
- Special Report: Elon Musk: This Could Turn $100 into $100,000
Despite growing uncertainty about how the Iran war could affect the artificial intelligence industry's growth, large AI names have not seen a major sell-off. So far, the sector's losses haven't exceeded the broader S&P 500's 4% year-to-date (YTD) decline. That said, new opportunities may be emerging in the AI ecosystem. NVIDIA (NASDAQ: NVDA) recently committed $2 billion each to two much smaller photonics-focused companies—Lumentum Holdings (NASDAQ: LITE) and Coherent Inc. (NYSE: COHR)—a move that could signal growing attention to this AI-adjacent technology. NVIDIA appears bullish that photonics firms could play a key role in the next stage of AI infrastructure. Investors have responded, sending shares of those two companies higher over the last month. This shift in focus has helped lift other photonics-related stocks as well. Here's what investors need to know. Coherent's Big NVIDIA Bet Could Be Transformative, but Valuation Warrants Caution One of the main constraints on scaling AI infrastructure is bandwidth. Traditional inter-chip communication methods can be a bottleneck, and photonics could be essential to expanding capacity as AI clusters grow. NVIDIA has made a sizeable bet on Coherent, a leading photonics company with a market capitalization around $51 billion. The firms have a 20-year relationship, recently deepened by NVIDIA's latest investment under a non-exclusive agreement that allows Coherent to continue serving other customers. COHR shares are up more than 45% YTD, pushing the stock roughly 11% above the consensus price target of $241.92. Analysts remain generally positive: 14 of 19 covering the stock assign it a Buy rating. That enthusiasm is partly grounded in the company's fundamentals, which help explain its rich valuation of about 270 times earnings. Coherent's revenue rose 17% year-over-year in the most recent quarter to roughly $1.7 billion, while earnings per share of $1.29 beat expectations by $0.26. Those results reflect strong data center demand, a ramp-up in production capacity, and upbeat guidance — including current-quarter revenue as high as $1.84 billion and non-GAAP gross margins projected between 38.5% and 40.5%. Investors should also note that the $2 billion private placement is dilutive, which adds risk despite NVIDIA's endorsement. Shares of Photonics-Adjacent Nova Ltd. Are Soaring Beyond Coherent and Lumentum, Nova Ltd. (NASDAQ: NVMI) is quietly gaining momentum, with shares up more than 45% YTD. Nova's metrology tools and process-control equipment are valuable to semiconductor manufacturers because they support production of photonic components and advanced chips more broadly. Those tools are critical for manufacturing and quality control in AI-related supply chains, so the booming AI market has naturally benefited Nova's business. The company reported record full-year 2025 revenue of $881 million, up 31% year-over-year, and guided Q1 2026 revenue to a range of $222 million to $232 million. Although Nova hasn't received a headline investment from NVIDIA, it has gained traction with major partners: several unnamed semiconductor makers have adopted the company's Metrion platform for production. Those partnerships should provide steady revenue streams and help the company navigate cyclical industry trends. Of the 10 analysts covering NVMI, nine give it a Buy rating, even though the share price is nearly 9% above the consensus price target. Like Coherent, Nova's rally has stretched valuation, though to a lesser degree — the company currently trades at about 60 times earnings. Investors attracted to Nova likely believe the company will continue to benefit from long-term ties with semiconductor manufacturers. Given the sizable rallies across photonics and adjacent stocks in recent months, cautious investors may hesitate to buy at current levels. Both Coherent and Nova now have an opportunity to prove their value to major manufacturers like NVIDIA — or face a pullback if sentiment cools. For investors bullish on photonics' role in AI infrastructure, these companies are worth watching. | 
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