Key Takeaways:
A new exchange-traded fund focused on optical technology has attracted $93 million in assets on its first day, signaling a rush of investor capital into the sector that builds the light-based plumbing for artificial intelligence. The boom, driven by the insatiable demand for data center bandwidth, is creating projected growth rates exceeding 50 percent for key component suppliers and reshaping the semiconductor investment landscape.
"Lumentum has been my top coverage pick for 18 months straight," Needham analyst Ryan Koontz told MarketWatch, citing high exposure to hyperscaler spending for his bullish stance on both Lumentum and Ciena. Koontz explained that each new generation of AI processors, like the leap from Nvidia’s Hopper to Blackwell chips, drives "a step-up in optical-interconnect performance and cost," ensuring continued demand.
The newly launched Corgi Lithography & Semiconductor Photonics ETF (EUV) holds 39 stocks, with Taiwan Semiconductor Manufacturing (TSM) and ASML as its top two positions. The fund trades at a hefty weighted forward price-to-earnings multiple of 40.6, nearly double the S&P 500’s 20.9 multiple and significantly higher than the 27.1 P/E of the broader iShares Semiconductor ETF (SOXX), according to data from LSEG.
This investor frenzy is rooted in a fundamental technological shift: optical connections are increasingly replacing copper-based wiring in data centers to handle the massive data flows required by AI workloads. This has placed companies specializing in photonics, photolithography, and optical interconnects at the center of the AI build-out, with firms like Marvell Technology recently acquiring Swiss photonics specialist Polariton Technologies to bolster its capabilities.
An analysis of the new EUV ETF's holdings and other major optical players reveals a group of high-growth, high-valuation stocks. Based on consensus sales estimates compiled by LSEG, 15 companies in the space are projected to see compound annual revenue growth rates ranging from 19.5 percent to as high as 192.7 percent between 2026 and 2028. This compares to a projected growth rate of only 19.1 percent for the entire S&P 500 information-technology sector.
The performance of these stocks reflects the market's optimism. Lumentum, Ciena, and Corning (GLW) all rank within the top 10 performers in the S&P 500 year-to-date. However, the high price-to-earnings ratios, such as AXT's 238, underscore the premium investors are paying for this future growth.
Marvell Technology (MRVL) has become a particular focus for Wall Street, with its stock surging over 111% in the past six months. On Thursday, TD Cowen analyst Joshua Buchalter doubled his price target on the stock to $180 from $90, citing sustained momentum in optical infrastructure. This followed even more bullish calls from RBC Capital and BofA Securities, both of which established $200 price objectives. Analysts point to Marvell's robust optical division, its role in AWS chip manufacturing, and its recent acquisition of Polariton as key catalysts. Despite the optimism, InvestingPro analysis suggests MRVL currently appears overvalued compared to its Fair Value calculation.
While specialized ETFs like EUV offer a targeted way to invest in the optical theme, they come at a higher price. For investors seeking broader exposure at a lower cost, the Invesco PHLX Semiconductor ETF (SOXQ) offers an alternative with a 0.19% expense ratio, compared to the higher fees typical of new, actively managed funds. SOXQ holds a concentrated portfolio of 31 large U.S.-listed semiconductor companies, including many of the same names but with different weightings.
The central question for investors is whether the explosive growth forecasts justify the sector's rich valuations. The next major data point will come on May 27, when Marvell is set to report its quarterly results. Market participants will be closely scrutinizing the company's optics business outlook and any commentary on custom AI chip initiatives for signs that the boom can continue.
This article is for informational purposes only and does not constitute investment advice.
