Optical Advance, Storage Retreat: US Stocks' New AI-Linked Theme
A new narrative is emerging in US stocks as investors seek the next clear AI-linked theme. Dubbed 'optical advance, storage retreat,' this trend highlights diverging fundamentals and stock performance between optical communication names and memory/storage stocks.
The shift towards optical interconnects solves bandwidth and power bottlenecks faced by copper in massive GPU clusters. Recent earnings from Lumentum validated accelerating demand for 800G-to-1.6T upgrades and co-packaged optics, while storage names show signs of slowing price upside due to crowded positioning.
Lumentum's fiscal fourth-quarter 2026 results delivered a near-perfect report that validates the optical narrative, with revenue and profits beating expectations. The company guided first-quarter fiscal 2027 revenue to $1.225-$1.275 billion with non-GAAP operating margin of 39.5-40.5%, reinforcing the 'optical advance, storage retreat' framing among traders.
The key drivers behind the optical upgrade cycle include the move from 800G to 1.6T optical modules and early adoption of co-packaged optics, which reduce power and latency. Supply remains tight for critical components, supporting pricing power and margins for leading suppliers that can expand capacity effectively.