Photonics Emerges As the Next AI Infrastructure Trade: ETFs in Focus
GPUs have long been viewed as the critical bottleneck in artificial intelligence (AI), but attention is increasingly shifting toward data transmission. As GPU clusters scale to tens of thousands of chips for training massive foundation models, traditional copper connections face growing limitations in distance, speed and power consumption.
Optical connectivity uses light instead of electrical signals, enabling data centers to support multi-terabit bandwidth with ultra-low latency and greater energy efficiency. Hence, photonics is increasingly replacing copper-based data transmission in supporting modern AI systems.
Goldman Sachs projects that the total addressable market opportunity for optical networking will grow more than nine times over through 2028, from an estimated $15 billion to an estimated $154 billion, as quoted on CNBC.
CPO Could Transform AI Networking
Note that in the area of optical connectivity, one of the key technologies expected to help overcome networking constraints is Co-Packaged Optics (CPO), which integrates optical engines directly with switching or computing chips.
This is an emerging key technology for next-generation AI data centers. However, industry experts expect traditional pluggable optical modules to remain dominant through 2026, given their lower costs, flexibility and easier maintenance.
Notably, CPO adoption is likely to accelerate from 2027, with experts expecting penetration of roughly 20% to 30% by 2028, as mentioned on Third Bridge. Near-Packaged Optics could serve as an intermediate solution as the industry addresses CPO’s reliability, manufacturing-yield and packaging challenges.
NVIDIA and Broadcom Lead the Race
NVIDIA NVDA has committed at least $6.5 billion since March to companies developing photonics technology, including investments in Coherent and Lumentum. NVIDIA’s Feynman architecture, expected in 2028, represents a major shift toward photonics and away from traditional copper-based interconnects, per the same CNBC article.
Also, NVIDIA has already moved CPO technology into production with its Spectrum-X networking platform, while Broadcom AVGO remains another major player. Industry experts expect NVIDIA and Broadcom to collectively control about 70% of the global CPO market by 2028, with NVIDIA potentially accounting for 50% and Broadcom 20%, per Third Bridge.
ETFs to Play
Against this backdrop, below we highlight two pureplay ETFs on the above-said theme.
Roundhill Photonics & Optics ETF LYTE
Roundhill Investments’ Memory ETF DRAM, which targets the memory trade, has been a huge hit in 2026, amassing close to $25 billion since April. Roundhill now bets big on the photonics boom due to AI data center optical networking innovation.
The company has launched a pure-play actively-managed ETF on the global photonics and optics industry, i.e., Roundhill Photonics & Optics ETF (LYTE) on Aug. 6, 2026. LYTE seeks to offer targeted exposure to global photonics and optics leaders. The fund holds 19 stocks in total. It charges 35 bps in fees. Top holdings of the fund are Coherent (15.99% weight), Lumentum (14.82%) and Eoptolink Technology (13.73%).
Tema Photonics & Optical ETF LAZR
It is also an actively managed fund, charging 75 bps in fees. The fund holds 28 stocks in total. Lumentum (15.22% weight), AXT (11.4%) and Aixtron SE (9.09%) currently hold the top three spots in the fund. The United States takes about 50% of the fund, followed by China (10.51%) and Germany (9.09%).
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This article originally published on Zacks Investment Research (zacks.com).
