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As yall know, AI has been absolutely booming in the past few years. When it first rolled around, the obvious bottleneck was the physical supply of chips, which is why companies such as Nvidia and AVGO (just to name two) skyrocketed and 10x in a few years. Last year, we saw a boom in energy demand, as data centers (i.e. hyperscalers) realized the insane energy demands needed to get these largely build data centers into action. Now, the market seems to have shifted back into an aspect of hardware - namely memory and its adjacent aspects.
Obv we all want to find the next bottleneck for AI, as each of these past bottlenecks ran up 500-600% in a very short period of time.
After some research, I am just putting my two pieces here: I think Co-Packaged Optics and Linear Drive Optics will be the next AI bottleneck. Naturally I did not come up with this idea, and the market seems to have reacted a bit to price this next bottleneck in, but I think there is a long way to run.
Obviously, I may be early, but I am confident that this sector should run up sooner or later.
For some context: Co-Packaged Optics (CPOs) and Linear Drive Optics (LDOs) are basically just optic cables that are used to transfer data between machines within a data center (usually within a few meters) efficiently. Currently, the industry seems fixated on copper (which is also partly why copper has ran up quite a bit in the last few months). However, copper info-carrying wires require huge amounts of energy to maintain (in fact I think I saw this stat where it said these copper wire transfers made up of 30% of total energy consumption in a data center or smth). Obviously, this is not sustainable. The next available technologies seem to be CPOs and LDOs. These technologies are basically fiber optic cables that use light and a laser to transfer info. This is much more efficient than copper wires. I must admit this bottleneck may not be as apparent as the memory shortage, but I believe should surface sooner or later.
Key companies public working in this industry include Coherent Corp. (COHR) and Lumentum Holdings Inc. (LITE). The most obvious and pressing issue that can be seen w these companies is the insane PE they are at (200+ and 500+ respectively). However, I would just like to point out then Micron (MU) was also trading at a crazy 130+ PE in late 2024 before must realized the memory bottleneck. It seems that the industry is planning on to start large scale integration using CPOs and LDOs around 2027. To me, this seems like a very similar setup to when OKLO ran up like crazy due to pure speculation.
I am not an expert, do your own DD. But these are just my personal thoughts. Yall are welcome to poke holes in my argument. Admittedly, I have yet to buy in to either of these companies, just seeking advice.