Tight. 3 of 4 warning signs are red, 1 is unknown. Confidence: medium.
This page covers the indium phosphide (InP) lasers inside AI data-center optics: high-speed EML lasers for transceivers, and high-power CW lasers for silicon photonics and co-packaged optics.
Lumentum and Coherent, two major makers of these lasers, say demand is running ahead of what they can make. Coherent is booked through the end of 2027, with customers now ordering into 2028. Lumentum is growing EML output by more than half and still expects to trail demand at year-end. A price rise for these lasers isn't confirmed yet.
Outlook: both companies are adding InP capacity through 2027, and new fabs arrive in 2027–2028. How long the shortage lasts differs by laser type.
New here? Skip to Background below for the basics. Coming back? Start with What changed.
This month
October 2026 · Updated Oct 4 · Next update after Lumentum and Coherent results in early November
What changed since last month
First reading. From next month this section leads with what moved and why.
Scorecard
Warning sign | What we saw | Reading | Source |
Long waits | Coherent says it is "booked really through the end of calendar 2027," and customers are now placing orders into calendar 2028. Coherent didn't break this down by product. | 🔴 Yes | |
Orders above supply | Lumentum on high-power lasers: "We are way behind in our shipments, unfortunately, on high-powered lasers." On EML lasers, Lumentum says it is still shipping behind customer demand. | 🔴 Yes | |
Prices going up | Not confirmed for these lasers. Lumentum: "We did reprice a little bit," without naming products. Its CW lasers sell at a premium to rivals, which is a price level, not a rise. Coherent says prices are set in its long-term agreements. No market price or index shows a rise. | ⚪ Unknown | |
New capacity not enough | Lumentum plans over 50% more EML units in the December 2026 quarter than a year earlier, and still expects to be well behind demand at year-end. Coherent is doubling its in-house InP output capacity, yet says "Indium Phosphide capacity continues to be our primary constraint." | 🔴 Yes |
Score: 3 red, 0 green, 0 mixed, 1 unknown = 🟠 Tight. Severe needs all 4 confirmed red. One unknown, so confidence is medium. The price sign turns red only if a representative measure confirms a rise for these lasers, not a single repricing comment or one deal.
Dates to watch
Nov 3 and Nov 11 (expected): Lumentum (Nov 3) and Coherent (Nov 11) quarterly results. Listen for EML and high-power laser shipments versus demand, InP capacity progress, and any named price increases.
Nov 18 (expected): NVIDIA results. Any comment on optical networking supply.
Ongoing: China's export permits for InP wafers. AXT can't yet estimate when US-bound shipments resume.
"Expected" dates come from earnings calendars. The company hasn't announced them yet.
Status history
- Oct 2026: 🟠 Tight (3 red, 1 unknown), medium confidence. First reading.
Background
Reference. Updated when the facts change, not every month.
What it is
AI chips inside a data center talk to each other constantly. Over longer distances, copper wires can't keep up, so the data is turned into light and sent down glass fiber. The part that does this is an optical transceiver, and at its heart is a tiny laser.
Different links use different lasers. Short links often use cheaper VCSEL lasers made on gallium arsenide (GaAs). The fastest and longer links use EML lasers, and silicon photonics and co-packaged optics use CW lasers. EML and CW lasers are built on indium phosphide (InP), and those are the lasers in short supply.
Where it sits: InP wafer (AXT, Sumitomo, JX) → laser chip (Lumentum, Coherent, others) → assembled into a transceiver (Fabrinet, InnoLight, others) → plugged into switches and servers → fiber links thousands of GPUs together
The bigger the AI cluster, the more links it needs. Lumentum's CEO said that for one major cloud company, the link between just two AI data-center sites carries double the backbone capacity it built worldwide over the past decade.
When something is short, two things happen. The seller can charge more and stays fully booked. The buyer has orders it can't fill on time. Same shortage, opposite effect on the stock.
Why can't they just build more?
- The material is concentrated. China produced about 760 of the world's roughly 1,100 tonnes of refined indium in 2025, and has restricted indium exports since February 2025. AXT, a large InP wafer maker with plants in China, says it can't estimate when it will get permits to resume shipments to US customers.
- The wafers are small. Makers are moving from 3-inch to 6-inch InP wafers. Coherent says a 6-inch wafer gives four times the output at half the cost. That's Coherent's figure for its own lines, and the switch takes time.
- New fabs take years. Lumentum is building a new InP fab in Greensboro, NC. It expects first revenue in early 2028, ramping through 2028.
How big is it, and how fast is it growing?
Measure | Number |
Lumentum total revenue (quarter to Jun 27, 2026) | $1.01B, up 109% from a year earlier. Whole company, not lasers only. |
Coherent total revenue (quarter to Jun 2026) | $2.05B, up 34%. Whole company. Management expects its first $3B quarter by the end of fiscal 2027 (a target, not a result). |
Coherent InP laser output | InP lasers produced up about 80% year over year in the June quarter. |
800G transceiver shortfall (McKinsey forecast, Jul 2025) | Supply forecast to fall 40–60% short of demand through 2027. |
1.6T transceiver shortfall (McKinsey forecast, Jul 2025) | Shortfalls of 30–40% forecast to persist through 2029. |
Who gets the supply
In March 2026, NVIDIA announced nonexclusive partnerships with both Lumentum and Coherent. In each, NVIDIA invests $2B to fund R&D, new capacity and US manufacturing, and separately commits to multibillion-dollar purchases with rights to future capacity. NVIDIA is likely to get priority on some of that capacity. The deals don't shut out other buyers, and the investment funds new supply that the whole market can draw on. Cloud companies also buy NVIDIA's networking systems, so they benefit when NVIDIA secures optics.
Who wins, who waits
The effects below are our interpretation, not company statements.
Company | Likely effect | Why |
Wins | Major EML and high-power laser maker. Demand exceeds what it can ship, and it repriced some products. How much it gains depends on how fast it adds output. | |
Wins | Makes both InP lasers and full transceivers, and is booked through 2027. It's moving to 6-inch InP wafers, which lowers its cost per laser. | |
Wins | Makes its own lasers and transceivers, so it relies less on scarce outside lasers. Plants in Texas, Taiwan and China. | |
Mixed | Assembles optics for Cisco, NVIDIA, Nokia, Amazon and others. Demand is strong, but its volume can be capped by how many lasers its customers can get. | |
InnoLight (Shenzhen: 300308), Eoptolink (Shenzhen: 300502) | Mixed | China's large transceiver makers. Strong demand, but laser supply can cap their output. How much they rely on outside lasers varies by product. |
AXT (AXTI) | Mixed | Makes InP wafers and signed a capacity reservation deal with Lumentum through 2031, with $87M in deposits. But its main plants are in China, and US-bound shipments wait on export permits. |
Mixed | Secured future laser capacity rights through nonexclusive deals and funded new supply. Its networking sales still depend on overall optics supply. | |
Exposed | Sells the switches that transceivers plug into, and also sells optics. Customers need optics to finish networks. We have no evidence of actual delays here. | |
META, Microsoft, Google, Amazon | Exposed | Every new cluster needs optics, so tight laser supply can raise costs or slow builds. How long their waits are isn't public. |
The takeaway: specific InP lasers are one of the tighter links in AI networking, and the makers are booked well ahead. Pricing power is plausible but not yet confirmed. The main risks are concentration (one material, a few fabs, China's export controls) and how fast new capacity arrives.
The companies behind it
- InP wafers: AXT (AXTI), Sumitomo Electric (5802.T) and JX Advanced Metals. JX plans to invest up to ¥120 billion over four years to raise InP wafer capacity about 7–10 times.
- Fiber: GLW.
- Signal chips inside transceivers: MRVL and AVGO make the DSPs that clean up the signal in many pluggable transceivers.
- Connectors and silicon photonics: APH (connectors) and TSEM (a foundry for light-based chips).
When does it end, and what could replace it?
- By end of Sep 2026 quarter: Coherent planned to double in-house InP output capacity year over year, one quarter ahead of plan. Completion is to be confirmed in its next results.
- December 2026 quarter: Lumentum targets over 50% more EML units than a year earlier.
- H1 2027: Coherent's third 6-inch InP site, in Zurich, starts production.
- End of 2027: Coherent plans to more than double InP output capacity again.
- Early 2028: first revenue from Lumentum's Greensboro InP fab, ramping through 2028.
- 2026–2030: JX's InP wafer expansion.
- Co-packaged optics (CPO): moving optics next to the chip saves power. It still needs lasers, but it shifts demand toward CW lasers and changes which parts are short.
What could go wrong for this view
- Capacity arrives faster. Coherent is already ahead of plan, and JX, Lumentum and others are all expanding.
- Other technologies take share. Cheaper GaAs VCSELs or new laser designs could take some links, easing demand for InP lasers.
- Customers over-order. In a shortage, buyers often order more than they need. If that reverses, orders could fall quickly.
How to read a change
Good easing
Laser waits shrink because 6-inch InP lines and new fabs came online, while orders keep rising. Clusters get built faster and makers sell more.
Bad easing
Waits shrink because cloud builders paused new clusters. In our view, laser makers' outlooks would weaken and their stocks would likely react.
What would change our view
- Gets tighter: China tightens InP export controls further, a big laser fab has a production problem, or makers confirm broad price increases.
- Gets easier (good): Lumentum or Coherent says it's catching up to demand while still guiding higher.
- Gets easier (bad): transceiver makers report order cancellations or inventory build-up at customers.
Past scorecards
Each month the previous scorecard moves here, newest first.
- None yet. October 2026 is the first reading.
Evidence and sources
Company results and calls
- Lumentum fiscal Q4 2026 call (Aug 11, 2026): high-power lasers "way behind"; EML still behind customer demand, and expected to stay significantly behind at year-end; over 50% EML unit growth by the December 2026 quarter versus a year earlier; "We did reprice a little bit"; CW laser price premium; three-year, mostly take-or-pay arrangements for pump lasers; additional substrate supply from AXT; Greensboro first revenue early 2028; two-site anecdote. Transcript
- Lumentum fiscal Q4 2026 results: revenue $1.01B, up 109.3% (quarter ended Jun 27, 2026). Press release
- Coherent fiscal Q4 2026 call (Aug 12, 2026): "booked really through the end of calendar 2027," orders into calendar 2028; InP "our primary constraint"; double in-house InP output capacity year over year by end of the September quarter, one quarter ahead of plan, and more than double again by end of calendar 2027; InP laser units up about 80% year over year; 6-inch wafers give four times the output at half the cost; Zurich 6-inch production H1 2027; first $3B quarter expected by end of fiscal 2027. Transcript · Motley Fool transcript
- Coherent fiscal Q4 2026 results: revenue $2.05B, up 34%. Press release
Deals and supply
- NVIDIA–Lumentum (Mar 2, 2026): nonexclusive; $2B investment for R&D, future capacity and operations as Lumentum builds a new US fab; separate multibillion purchase commitment and future capacity access rights. NVIDIA release
- NVIDIA–Coherent (Mar 2, 2026): nonexclusive; $2B investment for R&D, future capacity and operations; multibillion-dollar purchase commitment with future access and capacity rights. NVIDIA release
- AXT–Lumentum (Jul 29, 2026): capacity reservation with a minimum annual commitment of InP substrates through Dec 31, 2031; two $43.5M deposits applied as shipment credits. AXT release
- AXT export permits: AXT's Aug 13 quarterly filing says it can't estimate when it will receive Chinese permits to resume InP substrate shipments to US customers. Epoch Times, Sep 8
- Indium: China 760 of ~1,100 tonnes world refinery production in 2025; export restrictions since Feb 2025. USGS Mineral Commodity Summaries 2026
- JX Advanced Metals (Jun 16, 2026): up to ¥120B over four years to raise InP substrate capacity about 7–10 times. JX release
- Applied Optoelectronics: headquarters and manufacturing in Sugar Land, Texas, plus operations in Taipei and Ningbo. AOI release, Feb 2026. Its own laser platform. AOI release, Dec 2025
- Fabrinet fiscal 2026: Cisco 19.9%, NVIDIA 16.3%, Nokia 10.7% and Amazon 10.5% of revenue. Fabrinet 10-K
Forecasts
- McKinsey (Jul 2, 2025): 800G transceiver production expected to fall 40–60% short of demand through 2027; 1.6T shortfalls of 30–40% likely through 2029. These are forecasts made in mid-2025, not measurements. McKinsey
- Where sources disagree: McKinsey's shortfalls are mid-2025 forecasts. Coherent's ahead-of-plan InP ramp and JX's expansion suggest supply could improve sooner than they imply.
Words used on this page
- Optical transceiver: a module that converts electrical signals to light and back. Most are plug-in (pluggable) modules.
- InP (Indium Phosphide): the wafer material that EML and CW lasers are built on.
- GaAs (Gallium Arsenide): a different wafer material, used for VCSEL lasers.
- EML (Electro-absorption Modulated Laser): a high-speed laser used in the fastest transceivers.
- CW laser (Continuous Wave): an always-on laser that feeds light to silicon photonics and co-packaged optics.
- High-power laser: a stronger CW laser that can feed several optical channels at once.
- Pump laser: a laser that powers optical amplifiers in long-distance fiber links.
- VCSEL (Vertical-Cavity Surface-Emitting Laser): a cheaper laser used for short links.
- 800G / 1.6T: transceiver speeds of 800 gigabits and 1.6 terabits per second.
- DSP (Digital Signal Processor): the chip inside many transceivers that cleans up the signal.
- CPO (Co-Packaged Optics): putting the optics right next to the switch or GPU chip instead of in a plug-in module.
- Silicon photonics: making light-handling circuits on regular silicon chips.
- LTA (Long-Term Agreement): a multi-year supply contract, often with set prices and volumes.
- Take-or-pay: a contract where the buyer pays even if it takes less than agreed.
- Capacity reservation: a deal where a buyer pays to lock in a share of a supplier's future output.
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