Why Optical Fiber Is Having a Moment

Recent news points to optical technology making inroads in the datacenter market thanks to growing demand for enterprise networking, particularly in AI networks.

In the latest example, optical fiber maker Corning (NYSE: GLW) announced this week that its second-quarter 2024 earnings, due July 30, will likely exceed guidance thanks to what CEO Wendell Weeks terms “strong adoption of our new optical connectivity products for Generative AI.”

Corning shares popped on the news and were selling at $42.84, up +4.37 (11.37%) in midday trading on Monday.

Corning hoped for this. During the company’s first-quarter earnings call on April 30, 2024, CEO Weeks said he expected enterprise network sales to ramp during the second half due to increased orders for optical cabling linking both front-end and GPU cluster racks in AI networks. Thanks to new smaller-diameter, higher density RocketRibbon Cable with Flow Ribbon Technology, Corning is able to link NVIDIA H100 GPUs in 256-fiber racks at a cost of “low single-digit hundreds” of dollars per GPU.

Corning now anticipates sales to exceed previous guidance of $3.3 billion in sales and 38 cents EPS to achieve about $3.4 billion in sales and EPS between 42 and 46 cents, all thanks primarily to the AI growth.

There’s more: Corning’s Weeks has said the firm’s already at work on shrinking fiber to fit the dramatically increased density of NVIDIA’s new Blackwell GPUs. “There’s a whole new family of innovations which we are working on,” Weeks said on the first-quarter earnings call.

Nokia’s Infinera Bid Also Points to Enterprise

The enterprise space was also cited in Nokia’s announcement on June 27 that it will buy optical component player Infinera (Nasdaq: INFN) for $2.3 billion. In the press release, enterprise and hyperscaler (webscaler) demand was mentioned as a key driver of the deal, particularly as webscalers make up 30% of Infinera’s sales:

“The combination of these two businesses is also expected to accelerate Nokia’s strategic goal of diversifying its customer base and growing in enterprise…. Infinera has also recently been developing high-speed and low-power optical components for use in intra-data center (ICE-D) applications and which are particularly suited to AI workloads which can become a very attractive long-term growth opportunity.”

Other Enterprise Optical Opportunities Advance

As noted in Futuriom’s recently published report on Networking Infrastructure for AI, optical technology is taking an increasingly important role in hyperscaler and large enterprise networks. Google, for instance, features optical circuit switches (OCS), wave division multiplexing (WDM), and software-defined networking (SDN) in the proprietary Jupiter networking for its AI Hypercomputer.

Optical equipment market leader Ciena (NYSE: CIEN) has indicated that its expertise in coherent optics provides an opportunity to introduce products that speed up interconnections in large enterprise datacenters.

“We are very bullish around the opportunity,” said CEO Gary Smith on an earnings call last year. While Ciena doesn’t play in the datacenter now, Smith said that around 2025, the company could proffer a variant of its WaveLogic 6 modem designed for datacenter applications. Smith called the datacenter "clearly a massive opportunity for us farther out."

Optical Networking Isn’t Just for Big Companies

Clearly, optical technology has a future in hyperscaler and very large enterprise datacenters, where higher speed and greater density are increasingly required to meet accelerated computing demands. But what about enterprise datacenters that don’t necessarily need the bandwidth of a public cloud service provider?

Optical has a place there too. Corning promotes “fiber to the edge” LANs for use in smart buildings, Internet of Things (IoT) applications, and anywhere that WiFi is required. And over the past several years, interest has grown in passive optical networking (PON) technology, which splits optical signals from fiber for delivery to multiple endpoints. While this has definite advantages for carriers, the technique is also useful in a variety of vertical applications.

The growth of data, the increasingly complex structure of corporate networks, reliance on cloud services from external sources, and the need for greater physical security from external access by attackers and environmental elements put fiber optics in the spotlight. The trend will continue as these drivers gain momentum.

Futuriom Take: Recent news points to a growing demand for optical fiber solutions in datacenters and edge networks. Next year could show a spike in sales.