As 2026 kicks off, U.S. equities in the “hard technology” sector are blazing ahead, with two key subthemes driving performance: persistent strength in memory stocks and an explosive rally across the optical communication supply chain. Optical communication giants like Lumentum Holdings, Inc.(LITE.US), Coherent Corp.(COHR.US), and Corning Inc(GLW.US) have repeatedly set all-time highs in recent months, handily outperforming the Philadelphia Semiconductor Index (PHLX Semiconductor(SOX.US)). Their sustained momentum underscores not just short-term speculation, but structural tailwinds rooted in the future of AI infrastructure.

Core Investment Logic: The AI “Bottleneck Effect” Shifts from Compute to Connectivity

For the past two years, investor focus fixated on compute chips such as GPUs. However, as AI training clusters scale from tens of thousands to millions of processors, the volume of data exchanged between nodes is growing exponentially. The limiting factor for large model iteration has shifted from raw compute to high-speed interconnects. Without matched network capability, even the most expensive GPUs become low-efficiency “compute islands.” As a result, optical modules, fibers, and next-gen communication components are seeing a historic repricing—they’re now recognized as the “circulatory system” of the AI data center.

Upcoming Catalysts: Industry Events to Watch

•  NVIDIA GTC 2026 (March 16–19, California)

This annual conference is expected to be one of the most consequential yet. According to a recent report from GF Securities:

Rubin GPU and HBM4: Anticipated to be a major focus, showcasing advantages over Google’s v8AXHBM3e, potentially boosting NVIDIA Corporation(NVDA.US)’s product performance by up to 5x in inference and 3.5x in training.

LPU for Inference: NVIDIA may unveil its SRAM-powered LPU solutions, targeting ultra-fast, low-latency token generation to compete with OpenAI’s GPT-5.3-Codex-Spark.

CPO Expansion: The possible launch of second-gen CPO-based switches, leveraging TSMC technology, with continued R&D in photonic expansion to overcome the physical limits of copper cables.

•  OFC 2026 (March 15–19, California)

The Optical Fiber Communication Conference (OFC) is known as the “Super Bowl” for optical networking. This year’s event is set to be record-breaking in terms of both attendance and technical depth. Notable speakers include Coherent CTO Julie Sheridan Eng and NVIDIA’s Alexis Bjorlin (SVP of DGX Cloud).

Companies like Broadcom Limited(AVGO.US), NVIDIA Corporation(NVDA.US), Coherent Corp.(COHR.US), and Lumentum Holdings, Inc.(LITE.US) are poised to showcase innovation across CPO, 3.2T optical module mass production, EML/CW lasers, and breakthroughs in micro-ring modulators and silicon photonics. Satellite interconnect is an emerging thematic area.

Morgan Stanley’s Stock Ratings:

Corning Inc(GLW.US): "Top Long-Term Pick"

Target price: $127

Rationale: The “copper to fiber” migration is underappreciated in current valuations; the true upside will materialize post-2028, offering a strong safety margin and multi-year growth window.

Lumentum Holdings, Inc.(LITE.US): "Cautious"

Target price: $520

Commentary: LITE is executing well but faces a high bar—its profit margins need to leap from ~10% (FY25) to 35%+ (FY28). If EML supply normalizes or silicon photonics prices drop, sustaining such profitability could be challenging.

Coherent Corp.(COHR.US) & Ciena Corporation(CIEN.US): “Equal Weight”

Target prices: $250 (COHR), $280 (CIEN)

Both are riding the AI/DCI wave, but Morgan Stanley believes their valuations already fully reflect short- to medium-term upside.

Overall, Morgan Stanley’s top long-term pick is Corning: The market has yet to fully price in the long-term earnings potential of the shift from copper to fiber, offering significant upside beyond 2028. In contrast, Morgan Stanley is less upbeat on Lumentum: Its current valuation already reflects anticipated EML price hikes and CPO growth, and future profitability remains uncertain due to sensitivity to laser pricing.