Lumentum Positioned to Ride Wave of AI Optical Networking Growth as Co-Packaged Optics Gain Traction

The push to scale artificial intelligence systems is driving a parallel need for faster, more efficient data transmission within and between data centers. Co-packaged optics, a design that integrates optical components directly with silicon chips, is emerging as a key solution to overcome the bandwidth and power bottlenecks of traditional electrical interconnects. Lumentum, a specialist in photonic components and lasers, stands to benefit as hyperscalers and AI-focused enterprises adopt this architecture to handle the massive data flows required by large language models and AI training clusters.

Lumentum’s portfolio includes advanced lasers, photodetectors, and optical engines that are critical for co-packaged optics modules. As AI workloads demand lower latency and higher throughput, Lumentum’s technology is being evaluated by major data center operators and networking equipment makers. The company’s expertise in indium phosphide and silicon photonics gives it a competitive edge in enabling the optical interconnects that will define next-generation AI infrastructure.

For investors, the shift toward co-packaged optics represents a structural growth driver that could improve Lumentum’s revenue mix and margins over the next two to three years. Historically, Lumentum has been cyclical due to its exposure to telecom and industrial lasers, but AI-related optical networking orders are providing a more secular tailwind. Analysts estimate that the co-packaged optics market could exceed $1 billion by 2028, with Lumentum positioned to capture a meaningful share as early adopters ramp deployments.

From a business perspective, Lumentum’s partnerships with leading networking chipmakers and cloud providers reduce the risk of technology obsolescence. The company has already shipped initial samples of co-packaged optics engines for evaluation, and production volumes are expected to scale in late 2026 into 2027. This timeline aligns with the broader industry push to standardize co-packaged optics through consortiums like the Co-Packaged Optics Collaboration (CPOC).

Real estate and crypto investors may see indirect spillover benefits. Increased AI infrastructure spending drives demand for data center real estate, particularly in regions like Northern Virginia, Dallas, and Phoenix, where power and fiber availability are concentrated. Similarly, crypto mining operations that rely on high-bandwidth networking for blockchain validation could indirectly lift demand for optical components, though the primary driver remains AI.

Side hustles and small-scale investors should note that Lumentum’s stock often moves on news of large customer contracts or technology milestones. Monitoring quarterly earnings calls for updates on co-packaged optics revenue and customer adoption rates could provide early signals for entry or exit points. For those without direct stock exposure, owning broader semiconductor ETFs with Lumentum exposure offers a lower-risk way to participate.