GTC & OFC Coming Next Week: Will Optical Interconnects Become a Major Market Theme? BofA Bullish on These Stocks...

 

Next week, Nvidia’s highly anticipated GPU Technology Conference (GTC) is expected to showcase the company’s next-generation chip architecture. Simultaneously, another critical AI trend component will take center stage—optical interconnects. This technology enables communication between GPU clusters with high bandwidth, low loss, and low latency.

 

In a research note released this Monday, Bank of America (BofA) pointed out that as AI workloads demand higher performance than traditional copper conductors can provide, the optical interconnect market is expected to quadruple to $73 billion by 2030.

 

BofA analyst Vivek Arya expects Nvidia to lead this transformation, potentially becoming the first integrated system provider to replace traditional copper-based server backplanes with CPO (Co-Packaged Optics)—a shift that brings light-speed connectivity directly into the processor.

 

Arya noted that the "annual iteration cycle of computing power" from chipmakers like Nvidia and Broadcom is "forcing a synchronized upgrade in optical interconnect technology."

 

In addition to Nvidia’s GTC, the Optical Fiber Communication Conference and Exhibition (OFC) will also be held next week, providing the latest insights into the supply-demand environment for optical lasers and the progress of CPO device applications.

BofA’s Top Stock Picks

Arya believes that while Nvidia and Broadcom are "industry giants strategically integrating optical technology to optimize their product portfolios," Marvell Technology and Macom Technology Solutions Holdings are the "purer" beneficiaries of this trend.

 

Arya pointed out that Marvell is favored due to its involvement in both optical communications and custom chips, with its 23x forward P/E ratio being particularly attractive. Meanwhile, Macom’s exposure to optical components such as photodetectors and lasers is "undervalued," and it possesses "higher quality" earnings and gross margins.

 

Furthermore, last week Nvidia signed multi-year agreements with optical communication giants Lumentum and Coherent to procure advanced lasers and optical networking products. Lumentum and Coherent shares have soared 68.6% and 31.4% year-to-date, respectively.

 

Currently, Arya holds a Neutral stance on Lumentum and Coherent due to their high valuations, but he believes there may be earnings upside driven by market expansion and news from OFC. Arya’s analysis shows that Lumentum’s EPS could reach $35.30 by 2028—more than 50% above the Wall Street consensus of $23.

 

Notably, both Lumentum and Coherent are scheduled to be included in the S&P 500 later this month.

 

Arya also noted that traditional copper cable suppliers, such as Credo, will still benefit from the transition toward optical interconnects. He believes Credo’s Active Electrical Cables (AEC) will play a "unique role," representing an attractive multi-billion dollar market opportunity. Arya wrote that Credo’s current forward P/E of 24x makes it a "highly attractive investment target."

 

Arya added that Nvidia’s product roadmap has a "profound impact" on the direction of the optical communications industry and warned that related stocks could experience volatility as a result.

 

So far this month, Lumentum and Coherent shares have fallen 11.3% and 6.2%, respectively, while Macom has dropped 13.6%. Arya attributes this to investor positioning and uncertainty ahead of next week’s exhibitions.

 

"Despite the volatility, we expect robust, multi-year across-the-board growth for all suppliers," Arya wrote in his latest report.