Next Wave of AI Winners? Deutsche Bank Bullish on Hardware Plays, Spotlights Optical Laser Duopoly
As the artificial intelligence buildout accelerates, Deutsche Bank is turning its focus to the hardware sector, posing a fundamental question: What is indispensable in today's AI-driven architecture?
"Looking ahead into 2026, we will consume massive volumes of data, retain high-resolution media across edge devices, embrace emerging technologies, and prioritize friction-free convenience," Deutsche Bank analyst Gianmarco Conti wrote in a recent research note. "AI—whether deployed via consumer chatbots, enterprise agent swarms, or vibe-coding frameworks—fundamentally drives convenience."
Conti emphasized that this convenience translates directly into structural time savings and broad-based productivity gains across industries. For technology investors, market focus is progressively expanding beyond discrete GPUs toward CPUs and high-efficiency compute fabrics, surfacing a new cohort of "picks-and-shovels" hardware beneficiaries.
In the report, Deutsche Bank argued that optical networking providers are positioned to capture the largest windfall in the current phase of AI infrastructure deployment, naming Coherent and Lumentum as its highest-conviction hardware picks.
As hyperscalers accelerate datacenter buildouts, component manufacturers and networking operators stand to benefit most, Conti noted. "The initial phase of the AI buildout was defined by compute; the next phase belongs to connectivity," he wrote, citing surging demand and mounting supply deficits across networking components alongside compute clusters.
Against this backdrop, Conti initiated coverage on eight IT hardware and networking stocks this week:
- Buy: Lumentum Holdings (LITE), Coherent (COHR), Arista Networks (ANET), Cisco Systems (CSCO), Hewlett Packard Enterprise (HPE)
- Hold: Dell Technologies (DELL), Ingram Micro (INGM), A10 Networks (ATEN)
The Core Optical Duopoly
Conti highlighted Lumentum and Coherent—manufacturers of optical components and industrial-grade lasers engineered for datacenter interconnects—as top-conviction ideas.
"Every AI architecture, whether deployed via pluggable optics or co-packaged optics (CPO), fundamentally requires lasers," Conti noted. He added that both companies are operating under tight supply constraints, fully booked capacity, and active price increases.
Strategic positioning is further reinforced by Nvidia's $2.0 billion capital commitments to each vendor to fund dedicated R&D and lock in component allocations.
Conti characterized Lumentum as the "purest expression" of his thesis across the optical networking landscape, stating the company is "structurally insulated across packaging architectures" as its III-V semiconductor lasers represent an indispensable input regardless of integration design.
Coherent, a major supplier of advanced lasers and optical transceivers, differentiates itself through end-to-end vertical integration—spanning raw substrate materials and wafer fabrication to laser diodes and finished transceiver modules.
Enterprise Networking & Datacenter Plays
Conti also flagged Cisco Systems as a unique full-stack play, standing as the sole mega-cap networking vendor spanning all three layers of the hardware hierarchy: proprietary silicon (Silicon One), proprietary optics, and integrated routing and switching systems.
This vertical integration provides a distinct margin and supply-chain advantage over peers reliant on disaggregated third-party component sourcing.
On Hewlett Packard Enterprise, Conti identified enterprise networking as the company's core "profit engine" following the integration of Juniper Networks alongside Aruba Networks.
He expects the networking segment to deliver a disproportionate share of total operating earnings, while HPE's direct liquid-cooling architectures provide differentiated hardware moats in high-density AI clusters.