JPMorgan Backs Optical Suppliers After Datacom CAGR Raised to 35%

LightCounting raised its datacom market compound annual growth rate forecast to roughly 35% through 2028. J.P. Morgan analysts view the revision as a direct positive for optical component suppliers, naming Coherent Corp. (COHR), Fabrinet (FN), and Lumentum Holdings (LITE) as the primary beneficiaries. The upgraded trajectory marks a material improvement from prior estimates and signals that the structural demand thesis for optical components is accelerating after a period of inventory normalization.

35% Datacom CAGR Through 2028 Changes the Optical Thesis

The 35% CAGR through 2028 implies that the datacom optical market will more than triple in revenue from its current base. For Coherent and Lumentum, each with direct exposure to datacom modules, the trajectory upgrades their addressable market and supports higher revenue targets. Fabrinet, as a manufacturing partner, benefits from increased order volumes across multiple optical OEMs.

800G and 1.6T Transition Mechanics Propel Growth

The primary driver behind the faster growth is the industry transition to 1.6T and 800G optics within hyperscale data centers. 800G is already ramping in volume with leading cloud operators. 1.6T is in the design-in phase and expected to scale in late 2025. Higher attach rates for plugable optics and early adoption of co-packaged optics (CPO) are also lifting the forecast. Each generation commands higher average selling prices, which supports margin expansion even as volumes grow.

The revenue impact for suppliers goes beyond unit growth. 800G modules are priced several times above 400G equivalents. 1.6T modules will command an even larger premium. The combination of volume growth and price per port growth creates a powerful revenue and margin tailwind. For Coherent, which supplies both indium phosphide lasers and silicon photonics modulators, the technology mix shift supports gross margin expansion as higher-value products gain share.

The transition compresses product cycles. Suppliers that can scale production quickly capture revenue share. Coherent and Lumentum both have internal laser and modulator capabilities that give them vertical advantage. Fabrinet's contract manufacturing model provides flexibility without direct technology risk.

Coherent, Fabrinet, Lumentum: Risk and Alpha Score Context

Lumentum holds an Alpha Score of 54/100 (Mixed) on AlphaScala's proprietary model, reflecting balanced risk-reward amid its diversified photonics portfolio. Coherent Corp. scores 50/100 (Mixed), with its dual exposure to telecom and datacom creating a broader demand base. Fabrinet is not covered by AlphaScala's model but benefits from its role as a proxy on optical manufacturing volume. All three names trade at valuations that assume continued order momentum. Any deceleration in 1.6T timing would compress multiples. The baseline trajectory remains supported by the 35% CAGR forecast.

For investors tracking the LITE stock page, the 54/100 Alpha Score indicates a balanced setup. Similarly, the COHR stock page shows a 50/100 score that sits in the middle of the range, reflecting the mixed risk-reward of the current growth premium.

Earnings and Order Flow as the Next Confirmation Point

The next catalyst is the pace of volume ramps at hyperscale customers like Apple (AAPL) and NVIDIA. Quarterly order commentary from Lumentum and Coherent will either confirm the LightCounting trajectory or signal a pause. Investors tracking these names should also watch CPO adoption progress. Slower CPO scaling would direct more value toward pluggable plays. The baseline demand uptrend appears durable regardless. The stock market analysis section provides broader context for the sector rotation into optical plays.