NVIDIA NVDA has been the undisputed face of the first wave of artificial intelligence (AI), driving massive hardware deployment across global data centers. However, as cluster sizes scale to hundreds of thousands of chips, standard copper wiring is hitting its physical limits and light-based connections are becoming the critical enabler of AI growth.
Because every Nvidia GPU requires roughly six optical transceivers to function efficiently at scale, the physical data pathway has emerged as the next major hardware bottleneck.
As a result, investors seeking the next wave of outsized returns are looking past single-chip manufacturers toward the underlying infrastructure powering optical connectivity. Strong capital inflows reflect this shift, with global demand for AI-focused optical transceivers projected to reach $26 billion by the end of 2026, representing a 57% year-over-year surge, according to a TrendForce research.
This shift from electrons to photons is creating a strong tailwind for a new generation of thematic exchange-traded funds (ETFs) focused on this "plumbing" layer of AI.
To understand why these ETFs are attracting such solid capital inflows, we must first examine why traditional copper wiring is failing and how photonics is emerging as the ultimate solution to AI's data bottleneck.
Why Optics Are the New Future of AI Infrastructure
As AI models grow in complexity, the need to move data quickly and efficiently between processors is surpassing what copper can deliver. Silicon photonics is emerging as a dominant technology platform for next-generation interconnects because it offers improved bandwidth density and lower power consumption.
In contrast, traditional copper cables simply cannot handle the immense data throughput demanded by trillion-parameter AI models without generating excessive heat and severe power loss.
Hence, we are witnessing the explosive growth in demand for photonics, driving the new wave of AI infrastructure growth. Companies like Coherent COHR and Lumentum LITE, which manufacture advanced optical components and photonic devices, have seen their shares surge more than 90% and 162%, respectively, so far this year, as investors recognize their strategic importance to the AI supply chain.
Looking ahead, optical architectures are transitioning from standard pluggable transceivers toward Co-Packaged Optics (CPO) and Linear Pluggable Optics (LPO). These innovations will drastically lower latency and cut data-center power consumption. With cloud giants aggressively securing long-term supply agreements for photonic components, the optics sector is entering an extended multi-year expansion cycle.
Yole Group projects the global optical transceiver market to reach a staggering $112.3 billion by 2031, driven primarily by AI training and inference workloads.
Why Investing in Optics ETFs Makes Sense
Considering the aforementioned discussion, while photonics represents a massive structural tailwind, picking individual stock winners carries significant execution risk, given the complexity of the optical supply chain.
Investing via ETFs mitigates company-specific supply bottlenecks while providing instant diversification across the entire value chain of the photonics and optical ecosystem.
Investor appetite for this theme is already evident. The recently launched Roundhill Photonics & Optics ETF (LYTE) generated $72 million in trading volume on its very first day — surpassing the opening-day volume of the highly successful DRAM ETF, which recorded approximately $69.5 million. This robust early activity signals growing institutional conviction in AI's optical future, as investors increasingly recognize that the data transmission bottleneck represents the next major hardware investment cycle.
Top ETFs to Grab AI's Optical Future
Given the equity market’s growing appetite for exposure to AI’s optical future through ETFs, investors seeking to capture the broad secular upside of optical AI infrastructure may consider adding the following funds to their portfolios:
Roundhill Photonics & Optics ETF LYTE
This is an active fund, with assets under management (AUM) worth $257.9 million, offering exposure to a concentrated basket of 23 global photonics and optics companies. LITE holds the first spot in this fund with a 14.77% weight, while COHR holds the third spot with a 13.65% weight.
LYTE has gained 12.6% since its launch on Aug. 6, 2026. It charges 65 basis points (bps) as fees and traded at a good volume of 5.07 million shares in the last trading session.
Tema Photonics & Optical ETF LAZR
This is an active fund, with AUM worth $75.6million, offering exposure to 27 companies enabling faster data movement between the chips, servers, and data centers powering AI. LITE holds the first spot in this fund with a 14.97% weight, while COHR holds the ninth spot with a 3.81% weight.
LAZR has soared 33.9% over the past month. It charges 75 bps in fees and traded at a volume of 0.36 million shares in the last trading session.
Corgi Lithography & Semiconductor Photonics ETF EUV
This is an active fund, with AUM worth $536.8 million, offering exposure to 41 companies across the photonics value chain. Taiwan Semiconductor TSM holds the first spot in this fund with a 9.91% weight. LITE holds the seventh position with a 4.29% weight, while COHR holds the eighth spot with a 3.63% weight.
EUV has rallied 14.5% over the past month. It charges 35 bps in fees and traded at a volume of 0.96 million shares in the last trading session.
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NVIDIA Corporation (NVDA): Free Stock Analysis Report
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Lumentum Holdings Inc. (LITE): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).