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- Roundhill Investments’ DRAM ETF targeting the memory trade has been a breakout hit in 2026 amassing close to $25 billion since April, and it is now betting that the photonics boom due to AI data center optical networking innovation will be another investable theme.
- Goldman Sachs projects that the total addressable market opportunity for optical networking will grow more than nine times over through 2028, from an estimated $15 billion to an estimated $154 billion, and Nvidia has been investing billions into photonics companies.
- Roundhill’s Photonics and Optics ETF (LYTE) is set to launch on Thursday. In this case, it is the second fund manager to market with the niche AI trade after Tema ETFs’ LAZR Photonics & Optics ETF, which launched on June 30.
Jensen Huang, chief executive officer of Nvidia Corp., speaks next to a BlueField-4 STX Storage tray, from left, Vera CPU compute tray, and Spectrum-X Ethernet Photonics Switch System while holding a Spectrum-X Ethernet Photonics chip during a keynote address at the Nvidia GTC conference in San Jose, California, US, on Monday, March 16, 2026. Bloomberg | Bloomberg | Getty Images
Roundhill Investments found success this year with its Memory ETF (DRAM), amassing tens of billions of dollars from investors since launching in April. The ETF manager is now set to bring another AI thematic trade to the market, the Roundhill Photonics and Optics ETF (LYTE), scheduled for launch on Thursday. The new fund is targeting another niche within the rapid AI buildout that many on Wall Street and in Silicon Valley think, as with semiconductor stocks, is positioned for growth in the years ahead.
The photonics industry has been experiencing a boom due to AI data center developers’ desire to make use of optical networking — the transmission of data between processors using light pulses in fiber-optic systems rather than conventional electrical signals. Optical networking promises to allow data processing to move beyond the limitations of traditional copper wire connections, offering a method that is faster, more energy efficient, and that allows for data transmission over further distances.
The means for carrying out optical connectivity include lasers, optical fibers, modulators, and various connectors, all working in conjunction to build an enhanced fiber-optic network structure. These structures — as those at the forefront of the AI economy view them — are essential to bypass the physical limitations of existing AI infrastructure, which produces excessive heat, results in signal loss, and limits growth and, by extension, computing power.
Photonics and optics technology are quickly becoming integrated into the AI industry’s growth plans. Nvidia has committed at least $6.5 billion to companies developing photonics technology since March, including stakes in Coherent and Lumentum. Nvidia’s Feynman, a major GPU microarchitecture pivot away from copper and to photonics, is currently slated for a 2028 release. It is designed to improve interconnectivity and networking capabilities within data centers and operate at a scope surpassing current transistor technology and copper cable connections. Jensen Huang, Nvidia CEO, has called photonics the key to the “next generation of gigawatt-scale AI factories.”
“Photonics represents a way for Nvidia to scale their AI infrastructure without the energy costs that staying with electrical and copper will incur,” Alvin Nguyen, senior analyst at Forrester, told CNBC earlier this year. “By investing in photonics companies, Nvidia is making sure that advancements in photonics continue, and it will prevent them from hitting a scalability and performance wall that will occur if they remain on electrical and copper.”
Marvell Technology, which designs chips for data centers and which Huang said earlier this year could be the next trillion-dollar company, has been at the forefront of manufacturing silicon chips that allow light to be used in place of electricity, mirroring the goals of optical connectivity on the micro level. Nvidia invested $2 billion into Marvel in March.
In this case, Roundhill will not be first to the market with its photonics trade. Tema ETFs launched the LAZR Photonics & Optics ETF (LAZR) on June 30. “By Feynman, system bandwidth requirements are expected to rise to more than four times today’s levels, with light moving deeper into the system to connect more than 1,000 GPUs,” wrote Hong Yi Chen, an investment partner at Tema, in a blog post at the time of the LAZR’s launch. “At that scale, copper may struggle to deliver the bandwidth, distance, and power efficiency required.”
Goldman Sachs projects that, from 2026 through 2028, the total addressable market opportunity for optical networking will grow more than 9 times over, from an estimated $15 billion to an estimated $154 billion. Over the past few years, publicly-traded corporations specializing in the production of photonics technology have seen their market caps rise rapidly.
Shares of Lumentum have risen by over 100% this year. Similar investor bullishness can be seen in the performance of Lumentum’s peers, with Coherent up over 66%, and shares of Nlight rising by roughly 100%.
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Laser technology is critical across many sectors of the economy, including in the medical field, in manufacturing, and in defense, specifically with drone warfare.
“Our Locus system is the next generation of directed energy or laser weapon systems that allows us to defeat drones at very, very low costs,” Aerovironment CEO Wahid Nawabi told CNBC in April, referring to his company’s modular laser weapons system. “We’re talking less than $10 a shot to shoot down a drone with two to five seconds worth of laser energy in the air. This is the technology that is considered the holy grail for the next era.”
LYTE’s portfolio holdings have not been disclosed. Lumentum, AXT, and Aixtron are among top holdings in LAZR.
Top 5 holdings in LAZR ETF
- Lumentum: 14.95%
- AXT: 11.26%
- Anthropic: 11.04%
- Aixtron: 8.20%
- Applied Optoelectronics: 5.07%
Source: Tema ETFs
While the LAZR ETF has had limited success with investors to date, with roughly $18 million in assets since its launch on June 30, Roundhill has a promising recent track record. DRAM, which launched this past April to offer investors exposure to global memory chip companies, was the first ETF to reach $10 billion in assets in the span of just 10 days. Other ETFs, such as CHAT, Roundhill’s generative AI and technology ETF, and MAGS, which offers equal weight exposure to the “Magnificent Seven” stocks, also boast multi-billion dollar asset portfolios.
Investment in LYTE does not come without significant risks. One reason for the slow start for LAZR is the recent volatility in the AI sector. Shares of LAZR have declined since inception.
Stock Chart IconStock chart icon
Performance of the Tema LAZR ETF.
The current market growth of photonics and optics companies is largely predicated on the AI buildout continuing without significant setbacks or large-scale market disruption.
“The development and commercialization of photonic and optical technologies may be contingent upon the broader adoption of related technologies, including artificial intelligence, data center infrastructure, and advanced telecommunications networks,” Roundhill notes in its prospectus filing for the LYTE ETF. “A slowdown or disruption in the growth of these related sectors could materially and adversely affect the revenues and profitability of Photonic and Optical Companies in which the Fund invests.”
ETF experts say the photonics industry has evolved into a viable investment prospect.
“Photonics is a sufficiently developed and distinct theme to qualify as investable,” said Todd Rosenbluth, head of research at VettaFi. “While thematic ETFs can be volatile when a specific trend moves out of favor, the long-term persistence of the AI buildout provides a strong tailwind.”
Investors should not view thematic ETFs such as LYTE or LAZR as replacements for broad stock market funds, but these targeted equity portfolios can be profitable additions to investors’ core holdings, according to Rosenbluth. “We find that advisors and investors increasingly use thematic ETFs tactically to add long-term growth to core equity exposure,” he said. “These funds often complement S&P 500 or Nasdaq 100-based ETF holdings; typically, three to four thematic ETFs represent about 10% of a broader portfolio.”
The popularity among advisors should come with a note of caution based on the dotcom bubble experience, which is so often now being invoked in discussing market parallels to the AI boom. In the leadup to the dotcom bubble bursting, many advisors added allocations to telecom and internet-themed funds for their clients.
“Since investment themes cycle in and out of favor, investors must ensure their portfolios are diversified. While they can look to multiple thematic strategies, they must ensure they are not overly focused on one segment of the market,” Rosenbluth said.
—CNBC’s Kai Nicol-Schwarz contributed to this report.
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