Let There Be Light

Introduction

For readers who have recently joined us, our job as analysts is to wade through the noise and identify where the puck is going. We’ve been doing this since we first began publishing research in May 2023 with “ AI: Global Equity Beneficiaries”, opting to focus on the second and third-order effects of the massive data center buildout necessary for AI. Today, the AI buildout remains relentless, with an estimated $650B–$700B in capital expenditures to be outlaid by hyperscalers in 2026.

Since then, we have woven a thread through the AI supply chain backed by our thesis that infrastructure bottlenecks would dominate investor attention. As each layer of the supply chain is reinforced and expanded, the bottlenecks simultaneously respond to technological adoption and drive new demand in the infrastructure layer. In order to seek out these opportunities, we’ve continually deepened and expanded our existing coverage. Today, that leads us to update what was perhaps the single-most emblematic stance of our “secular growth at cyclical prices” approach: optics.

CitriniResearch was one of the most timely on the street to outline the opportunity for optics. For two months, with most of the stocks at or near 52 week lows, we pounded the table on this in two separate pieces.

In “ Interconnects 101” published in July 2024, we argued that AI’s next beneficiaries would become “more skewed towards who can provide the most marginal benefit,” specifically “optical interconnects and co-packaged optics (CPO)”. A few weeks later, in “ Can You Hear Me Now? The Coming Optics Shortage & Telco Supplier’s New Dawn”, we made an even bolder and more bullish call that presented these cyclically blown out names as becoming a prominent AI bottleneck. We even compared Ciena’s (CIEN US) revision cycle in 2024 to Nvidia’s going into 2023. In other words, our first call was that optics would matter a lot and the second was that the shortage would emerge before the market even noticed.

Th…