Optical communication stocks jumped in overnight trading. POET Technologies, Coherent up around 5%; Lumentum up nearly 2%; AAOI, Corning, Ciena up over 1%.
Nvidia CEO Jensen Huang had high praise today for Marvell, a maker of optical components that he said could become a $1 trillion company. And investors seem to be transferring those rosy feelings to other optical-components stocks.
Shares of Marvell $(MRVL)$ and Coherent $(COHR)$ were up 33% and 18%, respectively, while shares of Lumentum Holdings $(LITE)$ surged 14%. Corning's stock $(GLW)$ was also up 13% on Tuesday.
"The signal markets latched onto today is that optical content per AI rack is about to inflect higher," Baptista analyst Ishan Majumdar said, referring to optical components in data-center racks.
He said Huang's endorsement of Marvell at a keynote speech in Taiwan sent a powerful signal to investors that the "transition to co-packaged optics is a near-term build, not a someday story." Majumdar was referring to the increasing importance of optical components that are co-packaged with graphics processing units.
"More optics, more lasers, more switching, and they supply it," he said of Lumentum and Coherent. Nvidia (NVDA) has previously made multibillion-dollar investments in both companies.
The rally is also tied to a wider story about artificial-intelligence infrastructure spending, according to Needham analyst Ryan Koontz.
He told MarketWatch that opticals, as a "critical building block" for AI infrastructure, are being lifted by recent strong earnings results from Hewlett Packard Enterprise $(HPE)$ and Dell Technologies $(DELL)$. The results affirmed that there is "rocketing" demand for AI infrastructure, which feeds into the opticals sector, which is increasing as a component of AI infrastructure spending, he said. The results are quelling concerns that memory supply constraints could impede AI shipments and reduce demand for opticals, he added.
Koontz added that Ciena's $(CIEN)$ earnings report on Thursday will be another important gauge for optical valuations.