MW 10 stocks that let you invest like Nvidia in the next hot AI trade
By Christine Ji and Philip van Doorn
Here's why Lumentum, Credo and eight other stocks are at the center of this 'least understood' part of the AI boom
As AI models grow more advanced, faster connectivity solutions will become critical to efficiently transmitting large quantities of data.
Looking to invest in the artificial-intelligence boom beyond the obvious semiconductor bets? The AI connectivity trade is due for more attention.
Advanced AI models need to transmit increasing amounts of information across clusters of thousands of chips, pushing traditional copper connectivity cables to their limits. A new generation of AI chips is forcing a non-negotiable and massively expensive upgrade from copper to optical technology. Further innovations will be needed to develop AI at the edge - referring to devices such as wearables, cars and robots which must be able to process data and make intelligent decisions locally, without relying on a central data center
Nvidia Corp.'s (NVDA) recent partnership with Nokia Corp. $(NOK)$ highlights how connectivity has become a bottleneck for AI. During its Tuesday GPU Technology Conference in Washington, Nvidia announced a $1 billion stake in Nokia as part of a strategic agreement to advance AI networking initiatives. The companies will aim to develop and commercialize 6G technology that integrates AI with the existing radio access network.
In a note earlier this week, Mizuho trading-desk analyst Jordan Klein called optical-networking stocks "the least understood and probably least owned by retail investors" compared with memory, power and semiconductor names. Although optical-networking stocks have high growth, they come with higher risks because of increased volatility and uneven performance, making them difficult to value, Klein said.
He identified 10 names in the space that are well positioned to capitalize on the surging need for connectivity: Amphenol Corp. $(APH)$, Arista Networks Inc. (ANET), Astera Labs Inc. (ALAB), Ciena Corp. $(CIEN)$, Coherent Corp. $(COHR)$, Credo Technology Group Holding Ltd. (CRDO), Fabrinet (FN), Lumentum Holdings Inc. (LITE), Macom Technology Solutions Holdings Inc. $(MTSI)$ and Semtech Corp. $(SMTC)$
Here are those 10 companies sorted by projected compound annual growth rates (CAGR) for revenue from 2025 through 2027, based on consensus estimates among analysts polled by LSEG:
Name Ticker 2-year estimated sales CAGR through 2027 Forward P/E ratio Forward P/S ratio Share "buy" ratings 2025 total return
Astera Labs Inc. ALAB 36.5% 83.1 28.1 78% 28%
Credo Technology Group Holding Ltd. CRDO 36.2% 70.7 26.2 94% 148%
Lumentum Holdings Inc. LITE 24.3% 35.6 5.8 80% 138%
Arista Networks Inc. ANET 20.1% 49.0 19.5 85% 43%
Fabrinet FN 15.7% 33.7 3.8 70% 99%
Amphenol Corp. APH 15.2% 34.5 6.5 70% 101%
Ciena Corp. CIEN 13.8% 43.1 4.9 78% 123%
Macom Technology Solutions Holdings Inc. MTSI 10.6% 36.2 10.2 76% 16%
Coherent Corp COHR 10.2% 25.8 3.2 78% 40%
Semtech Corp. SMTC 10.1% 33.3 5.3 88% 10%
Source: LSEG
The projections are for calendar years, with adjustments made by LSEG for companies whose fiscal years don't match the calendar. (You might need to scroll the table to see all of the data or flip your screen to a landscape view.)
The forward price-to-earnings and price-to-sales ratios for these stocks are high relative to the S&P 500 SPX, which trades at a forward P/E ratio of 22.8 and a forward P/S ratio of 3.2. But the group's projected sales growth rates are much higher than the 6.5% revenue CAGR projected for the index.
In the right-most column in the chart, you can see total returns for the stocks this year through Thursday. Most have outperformed the S&P 500, which was up 17.2% (with dividends reinvested) for the same period. The combination of high valuation ratios and such strong recent performance underscores the importance of doing your own research and taking a long-term approach if you consider investing in growth stocks several years into a bull market, especially for AI.
But when thinking broadly, "all of these players are going to benefit" from the connectivity boom, Brad Gastwirth, global head of research and market intelligence at technology supplier Circular Technology, told MarketWatch. Gastwirth predicts the optical-component market will grow more than 50% year over year in 2025 and continue the momentum into 2026.
Some of these names, such as Astera Labs, Credo, Macom and Semtech, produce semiconductors that enable high-speed data transmission over fiber optics. Companies like Lumentum and Coherent build optical modules, which are the components that create and receive the light signals for fiber-optic communication. These modules are essential because light travels faster and more efficiently than electricity over copper wires. Fabrinet assembles and packages these optical components so they can be installed in high-performance routing and switching equipment from Arista and Ciena that is designed to manage data transfers and traffic across networks.
When an AI server needs to send data from a graphics processing unit, light signals travel from switch to switch on specialty cables manufactured by Amphenol. Inside the switches, optical modules transform the light pulses into an electrical signal so chips can boost the strength and quality. The electrical signal is then converted back into light and travels toward another switch.
"Data centers need low latency and high-density bandwidth density," Gastwirth said, referring to fiber-optic technology's ability to transmit data faster and in greater quantities. "You just need faster pipes."
The volatility in these companies come from the boom-bust nature of the overall industry, which is characterized by customer concentration, constant technology updates and shifting supply-and-demand dynamics, according to Gastwirth. It's difficult for companies to maintain sustainably high margins, he said.
However, Gastwirth anticipates that connectivity solutions will remain undersupplied in the near future, providing these companies with a boost.
He's certainly not alone in thinking this. Last month, Needham analyst N. Quinn Bolton got more optimistic about shares of Credo and Semtech. Credo's next-generation chips have demonstrated significant power advantages over competitors, Bolton wrote. And he added that Semtech is well positioned for the initial ramp of Google parent Alphabet Inc.'s $(GOOG)$ $(GOOGL)$ tensor processing units.
"I don't think we're anywhere near an overproduction," Gastwirth said.
Read: 5 bubble-resistant tech stocks to guard your portfolio from an AI crash
-Christine Ji -Philip van Doorn
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November 01, 2025 07:30 ET (11:30 GMT)
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