Global data center infrastructure is rapidly shifting from copper to optical technology as rising AI demand pushes physical transmission limits, driving strong growth across the photonics supply chain.
Optical transition accelerates as copper reaches limits
Copper cabling is becoming impractical for modern AI systems, losing efficiency beyond short distances due to heat and power constraints. Optical transmission offers longer reach, lower energy consumption, and minimal heat, making it the standard for next-generation data centers as speeds advance from 800G to 1.6T and beyond.
This shift is unfolding alongside massive capital spending. The world’s largest hyperscale operators are projected to spend more than $600 billion on infrastructure in 2026, up 36% from the previous year, reinforcing demand for optical components.
Demand surge drives revenue and backlog growth
Companies across the optical ecosystem are reporting sharp gains as supply struggles to keep pace with demand.
Corning, a major fiber supplier to firms such as Meta and Amazon, reported a 36% increase in optical communications revenue last quarter, while profit in that unit jumped 93%, lifting operating margins above 16%. The company has secured multi-year agreements worth billions, though recent insider share sales and slightly weaker forward revenue guidance have drawn attention.
Amphenol, operating in connectivity, posted more than 80% organic growth in AI-related data center business. Orders surged 78% to a record $9.4 billion, with a book-to-bill ratio of 1.24 indicating demand is outpacing supply. Margins expanded following a $10.5 billion acquisition tied to fiber assets.
Ciena is seeing similar momentum at the systems level. Its 1.6T optical technology helped lift backlog by $2 billion in a single quarter to roughly $7 billion, while revenue climbed around 40% year over year. However, its elevated valuation reflects high market expectations.
Supply constraints ripple through materials and manufacturing
Bottlenecks are emerging across upstream materials. AXT, a key supplier of indium phosphide substrates used in optical lasers, holds a backlog above $100 million. Export licensing requirements in China have delayed shipments, while wafer prices have surged by as much as 250%.
The broader supply chain faces structural constraints. Production of optical fiber depends on glass preforms, which require 18 to 24 months to scale. Major manufacturers report order books filled into 2027, with some component lead times stretching up to a year.
Testing and ancillary segments also benefit
The investment wave is extending beyond core components. VEO Solutions reported a 54% rise in revenue for its network testing unit, driven by demand to validate newly deployed optical infrastructure. The company’s margins have returned to double digits, supported in part by its parallel coatings business.
Technology breakthroughs raise performance ceiling
Engineers in China recently demonstrated data transmission speeds through a single optical fiber that are five times faster than current global standards. The development underscores how quickly performance limits are being pushed and adds urgency to global adoption of optical systems.
New ETF offers targeted exposure amid rising valuations
A newly launched exchange-traded fund focused on photonics provides targeted access to the sector, managing about $140 million and concentrating most holdings in a small group of optical component firms. However, valuations have surged, with some companies in the segment posting gains of several hundred percent over the past year.
Infrastructure layer emerges as key value driver
AI-focused data centers are requiring up to 36 times more fiber than traditional setups, intensifying pressure on supply. This dynamic is shifting attention toward the physical infrastructure layer, where materials, components, and systems providers are becoming critical enablers of AI expansion.
As copper approaches its limits, the buildout of optical networks is positioning the sector at the center of the next phase of data-driven growth, with light-based transmission replacing electricity as the backbone of global data movement.
Explore how AI intersects with blockchain infrastructure to understand broader implications of rising data and optical communication demands.
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