Investors looking for new ways to play the artificial-intelligence rush have found ample opportunity among optical-connectivity stocks.
Numerous companies focus on optical communications within data centers, as well as technologies such as photonics and photolithography that use light to transfer circuit patterns to chips. The likes of Lumentum Holdings $(LITE)$, Ciena $(CIEN)$ and Corning $(GLW)$ all have optical businesses, and their shares all rank within the top 10 performers in the S&P 500 SPX so far this year.
Now, there's a new exchange-traded fund focused on the optical theme. Earlier this morning, Corgi Funds launched the Corgi Lithography & Semiconductor Photonics ETF EUV, which is actively managed so that at least 80% of its portfolio will be invested in companies that are "materially involved in the development, deployment and operation of photonics and light-based technologies, including extreme ultraviolet (EUV) lithography and related semiconductor manufacturing and inspection tools," according to the fund's prospectus.
The ETF already has $93 million in assets under management. EUV currently holds 39 stocks; the largest holding is Taiwan Semiconductor Manufacturing $(TSM)$, which makes up 9.6% of the portfolio. TSM makes use of the expensive EUV machines produced by ASML Holding $(ASML)$.
Isaac Hargett, a portfolio manager at Corgi Strategies, told MarketWatch that the fund can hold companies of all sizes. Along with "large conglomerates that are materially involved" in optics and photonics, there are also "peer plays" held by the fund, he noted.
ASML, which specializes in EUV technology, is the second-largest holding of EUV and makes up 8% of the portfolio.
Screening optical and photonics stocks
To screen these semiconductor industries, we began with the 39 holdings of EUV, all of which are companies based in developed markets, and added three major players within the optical-communications space: Broadcom $(AVGO)$, Nvidia (NVDA) and Cisco Systems $(CSCO)$.
We then narrowed the list to 29 companies covered by at least five analysts working for brokerage or research firms polled by LSEG, for which consensus revenue estimates are available through 2028.
This group of growth stocks isn't cheap relative to consensus 12-month earnings-per-share estimates. On that basis, the EUV portfolio trades at a weighted forward price-to-earnings multiple of 40.6. This compares with a forward P/E of 20.9 for the S&P 500, and 27.1 for the iShares Semiconductor ETF SOXX.
This screen is based on projected compound annual growth rates (CAGR) for revenue, based on consensus sales estimates, adjusted by LSEG to match calendar years for companies (such as Nvidia) whose fiscal periods don't match the calendar.
Among the remaining 29 stocks, these 15 have the highest projected revenue CAGR from 2026 through 2028:
These two-year revenue CAGR projections compare with weighted projected growth rates of 7.8% for the S&P 500 and 19.1% for the S&P 500's information-technology sector XX:SP500.45, according to LSEG's data.
Needham analyst Ryan Koontz told MarketWatch that Lumentum has been his "top coverage pick for 18 months straight." He is bullish on both Lumentum and Ciena given their high exposure to hyperscaler spending, he wrote in a note earlier this year.
Koontz explained that despite concerns over a future slowdown in hyperscaler capital expenditures, he expects pricing for components to rise disproportionately to that slowdown. That's because optical connections are increasingly replacing copper-based ones in data centers. Additionally, new networking technology focused on optical circuit switching is rising in popularity.
According to Koontz, each new family of graphics processing units - like the leap from Nvidia's Hopper to Blackwell chips - drives "a step-up in optical-interconnect performance and cost." That should keep demand growing, he said.
He also named diversified companies Broadcom, Tower Semiconductor $(TSEM)$ and Marvell Technology $(MRVL)$ as his other favorites.
