Nvidia is investing $4 billion in photonic technology developers. Why would it do that?

Nvidia is investing $2 billion each in photonics manufacturers Lumentum Holdings and Coherent - the chipmaker has entered into strategic agreements with them to beef up its data center processors, Reuters reports . The deals also include Nvidia's commitment to purchase billions of dollars worth of laser and optical components, as well as future access to manufacturing capacity.

The company is actively seeking new ways to increase the speed of AI chips, with photonic products becoming a popular choice among many chip makers, the agency explains. These technologies use light instead of electrical signals to create connections between processors, making data transfers much faster and enabling next-generation data centers, CNBC writes . Custom chip maker Marvell Technology last year acquired startup Celestial AI for $3.25 billion to capitalize on its developments in photonics.

In a conference call following the release of its latest quarterly report, Nvidia management said the company would use its substantial cash reserve to invest in its AI ecosystem and boost performance models. This is especially important in light of the increasing competition in the market: one of the chipmaker's biggest customers, Meta, last week signed a $60 billion deal with rival Advanced Micro Devices, Reuters recalls.

Nvidia shares rose by almost 3% at the end of trading on March 2. At the same time, the quotations of both photonics companies soared. Lumentum added 11.7% of the value, and since the beginning of 2026 - doubled it. Coherent's stock jumped 15.4%, its growth this year is more than 60%. Nvidia's investment will help expand production capacity and development, the release said.

Wall Street looks at the prospects of the two developers with confident optimism: Lumentum shares are recommended to buy by 80% of analysts covering them, and Coherent shares - more than 70%, according to Marketwatch data. However, after the rally, the average targets for these securities are already lower than the current quotations: Lumentum's stock - by 24.7%, Coherent's - by 17%.

This article was AI-translated and verified by a human editor