Nvidia is investing in these two stocks. Wall Street says you should too
Investors would be wise to snap up two photonics stocks that are slated to receive several billion dollars from Nvidia, according to several analysts. On Monday, Nvidia said it would allocate a combined $4 billion to Lumentum and Coherent in a bid to develop research pipelines and supply chains for its major artificial intelligence infrastructure buildout. Coherent closed more than 15% higher on the news, while Lumentum surged nearly 12%. Shares were both lower on Tuesday amid a broad market sell-off. COHR LITE 5D mountain Coherent and Lumentum shares in the past five days “We view [the investment] as an overall positive for both Coherent and Lumentum, given consistent concerns regarding competitive pressures, particularly from Asia‑based peers, as it underscores the importance of an optical portfolio that extends beyond the transceiver design into critical components and a U.S. manufacturing presence,” JPMorgan analyst Samik Chatterjee said Monday in a note to investors. JPMorgan has an overweight rating on both stocks. Chatterjee added, “the announcements, in our view, highlight the importance of securing capacity, particularly relative to U.S. manufacturing, in addition to furthering [Nvidia’s] relationship with both Coherent and Lumentum — both of which were early partners in Nvidia’s [co-packaged optics] roadmap.” Nvidia’s co-packaged optics strategy refers to integrating silicon photonics into network switch application specific integrated circuits, or ASICs, to replace traditional pluggable transceivers — a move that could greatly improve power efficiency and bandwidth at AI-linked data processing centers. A longer-term play? Investors may have to wait to see the newer photonics-based technology become a major influence in the world of AI infrastructure. Rosenblatt analyst Mike Genovese doesn’t see a “sizable market” in scale-up co-packaged optics until at least 2029. “It’s not all happening overnight,” he said Tuesday in a note to clients. “These scale out … projects are relatively small and are not replacing transceivers in any impactful or even noticeable manner.” Genovese rates both Lumentum and Coherent as buy. He lifted his price target on Lumentum to $900 from $580, calling for nearly 15% upside from Monday’s close. The analyst also adjusted his price target on Coherent to $375 from $300, implying a gain of about 25%. Nvidia’s sizable investment into the two photonic stocks “ultimately supports a larger, more healthy ecosystem and sets up an even better long-term payoff for optical shareholders,” Raymond James analyst Simon Leopold said Monday in a note to clients. Lumentum and Coherent could also be good contenders to join the S & P 500 this year, according to boutique research firm Gordon Haskett. “The S & P 500 should be naming new members on Friday as part of its quarterly rebalance and because these two are now so far out in front of their midcap peers, we’d actually be surprised if the 500 took one and not the other,” Don Bilson, head of the firm’s event-driven team, said Monday in a note to clients. Both stocks are members of the S & P MidCap 400 index, but they have seen their market capitalization surge past $50 billion as investors look for winners in the artificial intelligence trade. Coherent is up 56% in 2026, while Lumentum has nearly doubled this year alone.
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