As the narrative of AI chip valuations peaking has gradually become market consensus, capital has begun searching everywhere for the next new story linked to AI.
And 'Light In, Memory Out' is precisely the new narrative born under this backdrop — memory is receding, and optical communications is taking over.
I. What is Optical Communications? Why is AI Inseparable from It?
The term 'light' refers to optical communications — the communication technologies and industry that transmit information using optical signals (primarily through optical fibers). Its core function is to achieve the mutual conversion between electrical and optical signals. Key products include optical modules/transceivers, lasers, photodetectors, optical fibers, and various optical components.
This industry is not new; it has long served telecom backbone networks and traditional data center interconnects, characterized by high bandwidth, low loss, and strong resistance to interference, making it suitable for long-distance, high-capacity transmission. Currently, its focus has shifted towards high-speed interconnects within data centers (between racks, between servers) and across data centers.
The logic linking it to AI is solid: the training and inference of AI large models rely on massive clusters of GPUs/accelerators, which frequently need to exchange huge amounts of data — gradients, parameters, activation values — generating extremely high east-west traffic. Traditional copper cables (electrical interconnects) have already hit their physical limits in high-speed scenarios: short transmission distances, rapid signal attenuation, high power consumption, and severe crosstalk. When single-lane speeds rise to 100G/200G and above, copper's viable distance is compressed to extremely short lengths, insufficient to support the expansion of large-scale clusters.
Optical interconnects precisely address these pain points: higher bandwidth density, longer transmission distances, and relatively better energy efficiency. It has become a key link in breaking through the scalability bottleneck of AI clusters — GPUs determine the upper limit of computing power, while optics determine whether this computing power can truly be networked together.
II. 'Light In, Memory Out': The Stock Price Trends Have Already Written the Answer
This narrative holds largely because the stock price trends of the two major sectors have diverged significantly enough.
On the memory side, companies like Micron and SK Hynix have already fully priced in expectations of tight supply and demand, price increases, and profit revisions. As memory price growth slows, capital positioning becomes crowded, coupled with growth concerns stemming from macro data like non-farm payrolls, capital has begun to reduce holdings, putting pressure on the sector against the broader market trend.
The optical communications sector paints a completely different picture: companies like AAOI, COHR, and LITE have surged due to earnings validation, the accelerated transition from 800G to 1.6T, and confirmed demand from AI cluster expansion. Capital is flowing from 'fully priced-in' memory to optical communications with a 'clearer earnings trajectory' — these three major U.S. optical communication stocks have risen approximately 40% to 50% since August.
III. LITE's Perfect Earnings Report: Sealing the Narrative
After the U.S. market closed last night, LITE delivered a nearly flawless earnings report, with almost nothing to criticize.
Both revenue and profit significantly exceeded market expectations, which goes without saying. What was truly impressive was the profit margin: gross margin broke through 50% for the first time, and operating margin reached 36.4% — across the entire optical communications sector, LITE is likely the only one achieving margins at this level.
Even more exaggerated was the guidance: the company expects an operating margin around 40% next quarter. Notably, management previously believed that achieving quarterly revenue of around $2 billion was necessary to reach a ~40% operating margin. Now, with expected revenue of only around $1.25 billion next quarter, the operating margin is projected to reach around 40%. The speed of profitability realization is far outpacing revenue scale growth.
Strong earnings data, strong guidance, maintaining 20% to 25% year-over-year revenue growth for multiple consecutive quarters, with margins still expanding — this is exactly the kind of earnings report the market loves to see.
Two details from the earnings call are worth noting. First, management repeatedly mentioned that the biggest issue currently for lasers is still insufficient capacity, with market demand far exceeding supply and production unable to keep up with customer demand. Second, they specifically addressed market skepticism about CPO progress: LITE's largest CPO customer has not delayed production plans but has instead accelerated demand further, leading to an even larger supply-demand gap for ultra-high-power lasers compared to last quarter.
IV. In Conclusion: Before Chasing Optical Communications High, Think About How to Get On Board
Next, another optical communications giant, COHR, will announce its latest earnings report tomorrow, warranting close attention. If COHR also delivers strong validation, can the 'Light In, Memory Out' narrative advance further?
However, looking at it calmly, the risks are equally evident: the three major optical communication stocks have already risen 40-50% in August; jumping in now carries a strong flavor of chasing highs. Earnings nights are notorious for sharp moves, and if COHR's report tomorrow falls short of expectations, the pullback from high levels could be severe. The dilemma at this level is this — believing in the narrative, but not wanting to buy at the peak.
In a market of narrative rotations, being first isn't necessarily right; surviving is. Get your tools ready first, then talk about getting on board.
Risk Disclosure
The content of this article is for market information sharing only and does not constitute any investment advice, recommendation, or trading commitment. The company earnings data, stock price trends, and industry narrative analysis mentioned herein are compilations of public information and the author's personal judgment. No guarantee is made regarding their accuracy, completeness, or timeliness, and past performance does not indicate future results. Financial markets are highly volatile, especially around major events like earnings releases, where prices of related securities and derivatives may experience significant fluctuations. Investors should fully understand the associated risks and make independent judgments based on their own financial situation, risk tolerance, and investment objectives, bearing all risks and consequences of their investment decisions.
