There’s one group of stocks within the broader artificial intelligence buildout that’s handsomely beating the rest of the market: photonics and optics. Shares of the AI beneficiaries have collectively gained 113% in 2026, vastly outperforming the MSCI All Country World Index, which is up 14% in that time. That makes photonics the best-performing global investment theme of the year, Bank of America said in a note dated Aug. 12. The group also ranks in the top quintile for what the bank calls “triple momentum,” a metric that combines signals from earnings, price and news momentum. The Tema Photonics & Optical ETF (LAZR) , which began trading at the end of June, has surged 34% this month, fueled by gains in industry leaders such as Coherent and Lumentum . That rally underscores broader momentum in photonics stocks as light-based technology becomes an increasingly critical component of hyperscalers’ nearly $700 billion AI data center buildout . COHR YTD mountain COHR year to date Optics technology, which includes photonics, is “universally necessary” for the AI buildout with its applications spanning across all kinds of large-language models, AI agents and specialized semiconductors, Raymond James analyst Simon Leopold told CNBC. That makes photonics and other optics stocks one of the best ways to capture hidden value across the AI supply chain in a crowded field. “The stress from AI clusters is pushing optics much faster,” Leopold said. “Optics is universally necessary for the transmission of data … it’s the pavement on the highway. It doesn’t care whether you’re driving a truck, a motorcycle or a car.” ‘You have to use optics’ Photonics refers to the use of light, or photons, to transmit and process data. The technology is used in several kinds of hardware, including optical interconnects, or networks designed to transfer data from AI facilities through glass fibers at the speed of light. Optical interconnects transport more data across greater distances than traditional solutions such as copper cables, while also using less energy. That makes them well suited to support the operations of AI data centers. “Data centers … are massive buildings, a million and a half square feet in a single structure, warehouse size,” Leopold said. “To move traffic over those kinds of distances, you have to use optics.” Traditional, less expensive copper cables, he added, simply aren’t up to the task. “If you put too much energy in a copper wire, it results in the same effect as a toaster oven. … It gets hot, it glows red, and it turns the bread brown,” Leopold said. “You can’t put too much energy in copper wires or they get very, very hot [and] eventually, melt. So, you go to optics as a medium to carry your traffic from network element to network element.” Notably, optics technology isn’t just being used to power alternatives to more traditional data conduits. It is also being used to develop co-packaged optics, or new architecture that aims to optimize optical interconnects. Separately, companies are using photonics to power specialized semiconductor chips that offer data bandwidth at high speeds and relatively low latency while generating less heat than standard silicon microchips. The photonics trade Paul Meeks, head of technology research at Freedom Capital Markets, said photonics are the future of AI, but the logistics of diving into the investment theme are far less clear-cut. Popular names such as Lumentum and Coherent may look a little expensive to some investors, Meeks noted. Coherent trades at around 35 times forward earnings, per FactSet, while Lumentum has a multiple of 42. The S & P 500, meanwhile, has a price-to-earnings ratio of 20. Those high valuations make timing each trade particularly important, said Meeks. “What you do is … wait for a bad day because it’s coming,” Meeks told CNBC. “Right now, the optimists are saying that all this AI spending is going to be a good thing in the end … but in July the short sellers and the bears were saying, ‘Oh my God, we spent too much on AI, and we’re never going to make any money out of it.'” “We’ll get whacked again just because the market goes through these kinds of waves,” he added. As far as which stocks to buy, there’s no shortage of options. Lumentum and Coherent are the “poster children” for photonics, and both firms have secured deals with semiconductor behemoth Nvidia , likely giving them a lot more room to run, according to Meeks. In March, the chipmaker said it would invest $2 billion each in Coherent and Lumentum to carve out research pipelines and supply chains for the AI infrastructure buildout. Beyond that, both companies have also secured robust pipelines of multi-billion-dollar agreements through the next few years. Shares of Lumentum have popped 163% year to date through Monday’s close. Coherent has risen 90% over the same period. Applied Optoelectronics is a lesser known name that offers exposure to the same investment theme. The optical transceiver and semiconductor laser maker competes with Coherent and Lumentum, even though its stock is smaller and more volatile, according to Raymond James’ Leopold. Applied Optoelectronics main appeal, however, is that it is based in the U.S with a significant manufacturing footprint in Texas, making it a good hedge against tariff hikes and other macroeconomic uncertainties. “If I want to manage my risk… [and] I don’t want to have all my dependency on Asia, I want to have sourcing in the United States. AOI would be a good option [for that],” Leopold said. Shares of the company have jumped 344% since the beginning of the year. Finally, Ouster , Ciena and IPG Photonics could also continue to advance on the ongoing AI boom. The trio has the most positive Triple Momentum among photonics stocks in the U.S., according to Bank of America.
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