Lumentum NASDAQ: LITE CEO Michael Hurlston said the growing bandwidth requirements of artificial intelligence data centers are accelerating a shift from copper connections to optical technologies, creating new demand across racks, clusters and data centers.
Speaking at Deutsche Bank’s 20th Annual Tech Conference, Hurlston said copper’s effective reach declines as connection speeds rise. At 800G, he said, copper can reliably carry signals for roughly 10 meters, while at 1.6T its reliable range falls to approximately two to three meters. Many links within data-center racks and clusters exceed those distances, he said.
“As these speeds go up, you go from 800G to 1.6T, eventually we are going to go to 3.2T, the presence of copper and the technical aspects of copper become more and more difficult to make work,” Hurlston said.
Optical Switching Opportunity Expands
Hurlston highlighted optical circuit switches, or OCS, as a major growth opportunity. He said customer engagement for OCS is broad and extends beyond Google, despite investor perceptions that Google is the principal user of the technology.
OCS can be deployed inside a rack to route traffic around overloaded or failed graphics processing units and tensor processing units, Hurlston said. He noted that hardware failures can be especially problematic when large compute models involve tens of millions of dollars in compute time.
The company’s largest customer has substantially increased orders since Lumentum’s most recent earnings call, according to Hurlston. He said stronger OCS demand and the product’s margin profile supported Lumentum’s updated fiscal 2028 earnings-power target of $40.
Lumentum had previously cited an $8 billion total addressable market for OCS, but Hurlston said that estimate now appears “significantly under called.” He attributed expanding interest to OCS’s power and loss advantages relative to electrical switches.
“We think this will be one of the largest growth drivers in the company,” Hurlston said.
Scale-Up, Scale-Across and Optical Engines
Hurlston said co-packaged optics, or CPO, and near-packaged optics, or NPO, represent the company’s largest near-term opportunities. He argued the technologies should not be viewed as mutually exclusive or as a threat to the broader optics industry.
In CPO designs, the optical engine is placed on the same substrate as core computing hardware, such as a switch or GPU. NPO places the optical engine separately from the principal compute or switch substrate. Hurlston said NPO is currently expected to represent a larger opportunity than CPO in the near term because some customers are adopting optical lanes at a higher rate.
Lumentum sees opportunities to supply high-powered lasers and external light sources, or ELS, to these architectures. In some configurations, lasers are separated from the optical engine and placed on the faceplate of a tray, he said. For certain NPO customers, Lumentum expects to supply the complete ELS.
Hurlston also said the company’s scale-across business—connecting separate data centers through fiber—is underappreciated. Training models can exceed the capacity of a single data center, requiring multiple facilities to operate together, he said. In addition, community resistance to large data-center projects may encourage operators to build smaller facilities dispersed over several kilometers, increasing the need for fiber connectivity among them.
Laser Demand and Manufacturing Capacity
On laser products, Hurlston said average selling prices for electro-absorption modulated lasers, or EMLs, roughly double in the transition from 100G to 200G. He said Lumentum and Broadcom are currently the two large suppliers of 200G EMLs, with limited competitive pressure visible in the near term.
While the number of EMLs is expected to rise as the market transitions from 800G to 1.6T, Hurlston said EML-based transceivers could decline as a percentage of the market as silicon photonics gains adoption. He estimated EML-based transceivers account for roughly 70% to 80% of the 800G market and could represent about 40% to 50% at 1.6T. At 3.2T, he said, silicon photonics may face technical limitations that could increase both EML unit volumes and market share.
Hurlston said laser quality and consistency can improve transceiver yields for customers, supporting a price premium. He added that Chinese suppliers may eventually compete in lower-power continuous-wave laser markets, particularly 70-milliwatt and 100-milliwatt products, but said Lumentum currently sees a supply gap it is being asked to fill.
The company is preparing manufacturing capacity to address demand. Hurlston said Lumentum’s Greensboro facility is expected to begin generating revenue in early calendar 2028 after a roughly two-year production ramp. NVIDIA has entered a multibillion-dollar long-term agreement with Lumentum and helped support the fab purchase and equipment investment, he said.
However, Hurlston said NPO demand has arrived earlier and at a larger scale than the company previously expected. Rather than becoming a late-2028 or early-2029 event, he said the opportunity now appears to be emerging in late 2027 and early 2028.
He identified time as the primary constraint on expanding supply, citing lengthy cycles for installing equipment, qualifying products internally and securing customer qualification. Lumentum is also managing constraints involving reactors, e-beam lithography tools and indium phosphide substrates.
Cloud Light Progress and Industry Risks
Hurlston said Lumentum’s Cloud Light module business has improved after earlier quality and time-to-market challenges. Following the acquisition of Cloud Light, quarterly revenue fell below $50 million because of quality issues, he said. The business has since improved quality and engineering execution, and is now running at more than $200 million in quarterly revenue.
The company has begun shipping 1.6T modules and is ahead of competitors on certain stock-keeping units, according to Hurlston. He said the next priority is improving gross margins in the module business.
On geopolitical risks, Hurlston said Lumentum could be a net beneficiary if the U.S. restricts Chinese transceiver suppliers, but cautioned that Chinese companies account for 70% of transceivers in the U.S. market. A sudden loss of that supply could disrupt hyperscalers and would require a measured policy approach, he said.
Looking ahead, Hurlston said investors should watch for optical connectivity moving beyond backplanes and into trays, where it could connect GPUs and memory. “Does this thing really take hold?” he said. “Are you going to see optics actually go in tray and serve this high bandwidth connectivity between memory and between GPUs?”
About Lumentum (NASDAQ:LITE)
Lumentum Holdings Inc, headquartered in San Jose, California, is a leading provider of photonic technologies that enable high-speed optical communication networks and advanced industrial applications. The company designs and manufactures a broad range of lasers, optical modules and subsystems tailored to the evolving requirements of telecommunications carriers, cloud data centers and enterprise networking.
Its core product portfolio includes tunable and fixed-wavelength laser transmitters, coherent optical engines, transceivers for long-haul, metro and data center interconnects, as well as test and measurement instruments.
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