Nvidia has signed multi-year, non-exclusive agreements with US-based Lumentum Operations LLC and Coherent that include long-term procurement commitments worth billions of dollars and priority access to high-end lasers and optical networking products. Industry observers say the deals could shift optical transmission from a supporting connectivity role to a central driver of AI computing capacity.
The agreements followed increased capital commitments from Nvidia, which allocated US$2 billion to each company to support research and development, future capacity expansion, and domestic manufacturing in the US ahead of GTC 2026. Lumentum and Coherent will supply advanced laser components for Nvidia's co-packaged optics (CPO) initiatives and related data center switch lines.
Both suppliers described strong demand dynamics in their recent earnings commentary, pointing to robust orders for 800-gigabit modules in 2026 and initial small shipments of 1.6-terabit CPO beginning that year. They expect broader volume growth in 2027 and 2028, while demand for 400 gigabit modules remains elevated amid AI infrastructure buildouts.
Supply and scaling implications for silicon photonics
Lumentum reported sold-out wafer fab capacity for high-power CPO lasers and anticipates several hundred million dollars in ultra-high-power CPO laser orders slated for delivery in the first half of 2027. The company said the US$2 billion from Nvidia will be used to fund new wafer fabs in the US and expand manufacturing to meet AI data center requirements.
Coherent told investors its data center order-to-ship ratio exceeds four times current throughput, with customer orders fully booked through 2026 and most orders extending into 2027 and 2028. The company plans to double indium phosphide capacity by year-end and described Nvidia's investment as underpinning a deepening, long-term commercial relationship.
Volume ramp still hinges on product maturity
Industry insiders emphasize that 2026 will be a validation year for 1.6 terabit CPO: shipments will be limited as the industry prioritizes technical verification and reliability over scale. True volume expansion is widely expected between 2027 and 2028, contingent on product maturity and further technical validation.
The limitations of traditional pluggable modules are cited as a key driver of the shift. Beyond external modulated lasers, pluggable optics face physical constraints on power consumption and signal attenuation, which proponents say accelerate CPO adoption as a response to looming AI compute bottlenecks. Nvidia has already introduced two data center switch series using CPO technology in March 2025, with Lumentum and Coherent named among essential suppliers.
Taiwanese suppliers positioned to benefit
Taiwanese optical communication companies are positioned to capture downstream demand as SiPh adoption grows. Firms such as LandMark, Luxnet, FOCI, and Browave have entered major supplier chains, supplying epitaxy, backend processing, and related components. Elite Advanced Laser Corporation, GCS, and IET were identified as potential beneficiaries across epitaxy, packaging, and photodiode needs, while Win Semiconductors may see increased demand for epitaxy and backend services if overflow foundry demand materializes amid tight capacity.
Market outlook over the next three to five years focuses on the transition path from 800-gigabit to 1.6-terabit modules and beyond. Analysts and executives cited in recent statements expect SiPh to become the primary route for high-speed data center transmission as AI compute requirements intensify, driving rapid growth in the optical communications sector through the latter half of the decade.
Article translated by Jingyue Hsiao and edited by Jack Wu
