3 High-Growth Unknowns in Photonics That Are Vital for AI

Key Points

• Three photonics companies have grown by at least 20% year-to-date, highlighting the potential for this technology to continue to play a pivotal role in AI applications.
• Lumentum and Coherent are pure-play photonics names that are on a rapid growth trajectory, though investors may hesitate based on valuation concerns.
• MKS Instruments offers a variety of components, tools, and services including some in the photonics space and could represent a more diversified approach.

Photonics technology uses light—photons—to perform tasks typically handled by electronic tools, including data transmission, laser manufacturing, and medical and consumer applications. The potential applications of photonics are far-reaching, and new use cases are emerging all the time. Still, the industry remains relatively unknown to most outsiders, making it a prime target for savvy investors seeking new tech opportunities.

An essential question for any tech investor in 2026 is how their investment targets may interact with and benefit from AI applications. Fortunately, one of the key advantages of photonics over other technologies—that it can achieve lightning-fast data transmission—is also a key need in the AI space. 

Although fairly large, with market capitalizations of about $43 billion, the three companies below, specializing in photonics, are not well known to investors outside this niche corner of the tech space. Still, they could help to fuel the next wave of advances in AI, making them potentially very valuable to those in the know.

Vital AI Partner Thrives on High Demand, But Valuation Is a Concern

Lumentum Holdings Inc. NASDAQ: LITE builds lasers, optical modules, and related systems for telecommunications and data center applications. Shares are up an impressive 45% year-to-date (YTD) thanks to its strong earnings report for Q2 fiscal 2026, the period ended Dec. 27, 2025.

During that period, revenue climbed by nearly two-thirds year-over-year (YOY) to more than $665 million, and the company's optical circuit switch business thrived, building up a backlog of $400 million by quarter's end.

Despite some manufacturing and backend bottlenecks that Lumentum needs to navigate, it seems likely the firm will continue its rapid growth as data center demands remain strong.

Lumentum has projected a revenue midpoint of $805 million for the current quarter, which would represent an 85% improvement YOY.

The company's cloud transceiver and ultra-high-power laser businesses are also accelerating as the firm embeds itself even more deeply into nearly every AI platform.

Analysts are bullish on LITE shares, assigning a Moderate Buy rating overall, but the question for investors may be whether there are still share-price gains to be made at this stage. The consensus price target for LITE is actually about 21% below where it currently trades, but on the other hand, analysts expect astronomical earnings growth in the coming year to $2.03 from just 3 cents, which may help to justify the company's premium valuation.

Coherent's Performance Is Impressive, Despite Lagging Some Peers

Coming in slightly behind LITE shares with a YTD performance of 20%, laser and photonics equipment maker Coherent Inc. NYSE: COHR is nonetheless an early winner in 2026. The company's Q2 fiscal 2026, which ended Dec. 31, 2025, topped analyst predictions for both earnings and revenue thanks to excellent transceiver demand. Coherent continues to scale production while also reducing net leverage, positioning itself well to meet growing client needs sustainably.

However, Coherent faces intense competition from Lumentum and others and has so far not been able to keep pace with margin expansion and revenue growth.

The dominance of its transceiver business may also leave it vulnerable, with little else to fall back on should competition threats continue to grow. Like Lumentum, Coherent's rapid growth can also raise concerns for investors worried about valuations. Still, the company has an advantageous position in a high-growth space and enjoys support from analysts, as well as an expectation for 34% growth in earnings this year.

Diversifying Beyond Pure-Play Photonics May Be A Strong Play

MKS Instruments Inc. NASDAQ: MKSI is not a pure-play photonics company, as it also offers a variety of other pressure and flow instruments, optical metrology tools, and other components used in manufacturing semiconductors and similar products.

This variety may be a strength, however, as MKSI shares are the best-performing of these three firms, with about 48% returns YTD. The company's Q4 2025 earnings are still to come, but it recently boosted its guidance for both revenue and gross margin for the period. The company is also improving its debt and liquidity by refinancing its credit facilities.

The last quarter saw headwinds related to tariff impacts and a higher equipment mix, but analysts are optimistic about shares of MKSI overall. With projected earnings growth of 24% in 2026, MKSI has the potential to continue its rally.