๐ฅ The AI trade nobody sees ๐
AI Summary
Milk Road AI argues that optical transceivers โ not GPUs โ are the overlooked infrastructure layer powering the AI buildout, with NVIDIA's $4B investments in Coherent Corp and Lumentum signaling an impending supply crunch in InP laser fabrication. The newsletter profiles four public companies (COHR, LITE, AAOI, CRDO, MRVL) positioned to benefit from the 36x increase in fiber demand that AI data centers require versus traditional CPU-based systems. Jensen Huang's doubling of AI infrastructure demand projections to $1T through 2027 implies $50B in cumulative optical networking spend that most analyst models are underestimating by 2x.
Key Facts
Author Takes
NVIDIA's CoWoS analogy for optical supply crunch
NVIDIA identified InP laser fabrication as the next CoWoS bottleneck and locked in supply before the shortage hits, exactly as the CoWoS crunch caught everyone off guard in 2023-2024.
AI infrastructure demand projections
Either Jensen is wrong about the $1T AI infrastructure projection or analyst models are underestimating optical demand by a factor of two โ and Jensen has historically been the better bet.
Lumentum's $8B revenue target
Lumentum's 5x revenue target in under two years seems delusional unless they know something the market doesn't โ and the $2B NVIDIA check suggests the latter.
Copper interconnects
Passive copper is not viable for AI cluster interconnects, maxing out at 2-3 meters at 800G, making its era effectively over for this application.
Contrarian Angle
Optical Transceivers as the Real AI Infrastructure Trade
While the market focuses on GPU makers like NVIDIA, optical transceiver companies (COHR, LITE, AAOI, CRDO, MRVL) are growing 80-200% annually as AI data centers require 36x more fiber than traditional systems โ with NVIDIA pre-buying supply chain before the shortage hits.
Everyone watches GPU makers while the binding constraint and highest-growth opportunity is in boring optical networking components nobody discusses
Optical Transceivers / Active Electrical Cables replacing Passive Copper Interconnects
AI clusters are migrating from passive copper (limited to 2-3 meters at 800G) to optical transceivers and AECs, with NVIDIA's Feynman platform in 2028 completing the transition by replacing copper NVLink with optical NVLink.
Engineers switching from Passive Copper Interconnects to Optical Transceivers / Active Electrical Cables
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