Optics Sector Quick Take: Nvidia's Partnership with Corning; Lumentum and Coherent's Earnings Summary

The optical communication sector has been one of the best-performing segments year-to-date, and several companies have recently released their earnings reports. Although the revenue growth reported by several companies has accelerated compared to the previous quarter, the significant run-up beforehand led investors to set higher expectations, resulting in a general decline in stock prices following the earnings announcements.

Lumentum and Coherent announced earnings results

$Coherent (COHR.US)$ announced its financial results on May 6th. Total revenue was $1.806 billion, an increase of 20.5% year-over-year and 7.1% quarter-over-quarter, slightly exceeding expectations of $1.78 billion. Non-GAAP EPS was $1.41, up 55% year-over-year, slightly beating the expected $1.40. Non-GAAP gross margin was 39.6%, an increase of 1.1% year-over-year.

Data Centers and Communications served as the core growth engine, with revenue of $1.362 billion, up 41% year-over-year and accounting for 75% of the total. The Industrial business (traditional lasers) saw a 2% year-over-year decline, reflecting continued weakness that dragged down overall growth. Initial scale-out CPO revenue is expected to ramp up in the second half of the calendar year, with scale-up CPO revenue set for the second half of 2027.

Q4 revenue is expected to be between $1.91 billion and $2.05 billion; non-GAAP gross margin is guided at 39%-41%.

$Lumentum (LITE.US)$ announced its financial results on May 5th. Total revenue was $808 million, a 90% year-over-year increase, slightly below the expected $810 million, but a new historical high. Non-GAAP gross margin was 47.9%, up 12.7 percentage points year-over-year. Non-GAAP operating margin was 32.2%, up 21.4 percentage points year-over-year and 7 percentage points quarter-over-quarter, driven by economies of scale and a shift towards higher value-added products. GAAP net profit was $144 million, compared to a loss of $44 million in the same period last year, marking a return to profitability.

Breaking it down by business segment:

Components business (optical chips, lasers): $533 million, a 77.3% year-over-year increase, accounting for 66% of total revenue. Demand for 800G/1.6T EML lasers is outstripping supply, with a deep partnership with Nvidia.

Systems business: $275 million, a 121.1% year-over-year increase, accounting for 34% of total revenue. This growth was fueled by a surge in orders for high-speed coherent modules and optical circuit switches (OCS), along with securing hundreds of millions of dollars in CPO (Co-packaged optics) orders.

For FY 2026 Q4, the company's guidance projects revenue of $960–1010 million (midpoint $980 million, +85% YoY) and Non-GAAP EPS of $2.85–$3.05, significantly above expectations.

Both companies experienced profit-taking by investors after the release of their financial reports, leading to a pullback in their stock prices after the earnings day. However, we believe the long-term underlying logic remains unchanged.

NVIDIA's partnership with Corning reinforces the position of optical communications

$NVIDIA (NVDA.US)$ is extending the competition for AI infrastructure from chips to optical fiber.

On May 6th, NVIDIA and $Corning (GLW.US)$ announced a multi-year commercial and technical partnership. Under the agreement, Corning will build three new advanced manufacturing plants in North Carolina and Texas to exclusively produce optical connectivity solutions for NVIDIA, a move expected to create over 3,000 high-paying jobs.

NVIDIA invested $500 million to acquire equity warrants in Corning. This includes two immediately exercisable warrants: one to purchase up to 3 million shares at $0.0001 per share, and another to purchase up to 15 million shares at $180 per share. Following the announcement, Corning's stock price surged over 12% on May 6th.

This is not an isolated bet for NVIDIA. In just a few months, the company has invested $2 billion each in Lumentum and Coherent to secure core production capacity for optical chips and modules. Previously, $Meta Platforms (META.US)$ had also pledged up to $6 billion to support Corning's expansion.

NVIDIA's investment secures long-distance, low-loss fiber optic solutions. The "iron triangle" of optical chips, optical modules, and optical fiber is now firmly in place. NVIDIA has taken control of the entire optical interconnect supply chain from the ground up, rather than leaving the optical design of its GPU clusters to third parties. Given that NVIDIA's scale-out optical interconnect strategy is advancing faster than its scale-up strategy, the fiber optics sector is theoretically poised for a quicker return on investment.

According to recent statistics, several of NVIDIA's key recent investments have seen significant gains following the announcement of the investment. As a core sector for resolving AI computing bottlenecks, $Marvell Technology (MRVL.US)$ , in which NVIDIA holds a stake, has surged 96.15%. Meanwhile, Lumentum and Coherent, which received investments in March, have also seen gains of over 30%.

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