.Precise Market Insights.
69 posts
There is one looming bear case for Photonics
$LITE $COHR $AAOI $SIVE
That this is cyclical and will end up in oversupply.
With lots of the focus on lasers/transceivers.
My goal with this post isn't to refute that.
We can talk about how much demand is still showing up
Or the difference between 'capacity' and 'qualified capacity'
Or the different moats that exist for certain porducts.
And more. But I won't dig into that now.
For those of you that are concerned about oversupply at these layers, I want to encourage you...
Don't look at the Photonics sector as 1 general trade.
While they generally share sentiment and move in sync, the different layers have different headwinds & tailwinds.
Hopefully different companies will be albe to de-sync and the most durable will outperform.
Sure, the market can decide it doesn't want to reward a premium multiple. Fine.
Let's separate the stock from the company for a sec.
Think about it....
Which companies will BENEFIT if there is an eventual oversupply at the laser/transceiver level?
> Does more volume here mean more fiber deployment from $GLW ?
> Does more laser supply/availability mean that $NOK $CIEN can better meet their demand?
> Does more volume mean more components that need to get tested? $AEHR $FORM $VIAV
Would love to hear your thoughts around who would be hurt and who would benefit.
Assuming that supply does actually catch up to demand at any near point.
Gaetano@crux_capital_
If you care about Photonics, read this $AXTI $SIVE $LITE $COHR $GLW $AAOI etc. There are lots of important updates here The one I want to talk about in this post is InP substrates If you have been following the $AXTI story, you are familiar with InP substrates They are the starting material that the downstream optical components are typically built on. The components that companies like $lite $cohr $aaoi $sive make Substrates have been a chokepoint for two main reasons. 1 - There just aren't enough of them to meet the demand from customers and their forecasts. 2 - They are gated by geopolitics. Much of the concentration of supply is in China So the lack of supply visibility has lead to downstream constraints all the way from lasers to modules. Now GS is forecasting that InP substrate supply is going from 'very tight' to 'tight'. This shouldn't come as a surprise. We know that AXT is massively expanding capacity over the coming quarters/years. Doubling in 2026 and doubling again in 2027. We also know that other China supply is ramping. Yunnan Germanium, Guangdong Xiandao and others. That is all great for downstream companies. More visibility on substrates means more confidence in their capacity ramps and better conditions to meet customer demand. This flows through the whole chain ... If $LITE for example can source more substrates, they can justify more tool purchases, they can sell more lasers, more transceivers could be made, more fiber can be laid, more components can be tested and assembled etc. For $AXT it means more competition. But GS also forecasts pricing staying strong for substrate suppliers so it's not like there is near term margin compression. We also don't know how much of this 'capacity' is qualified capacity that is able to be shipped internationally. So there is an asteric There is also a read through from the optical cables update here for $glw and the fact that optical devices is staying tight is good from the supply/demand environment and a counter to oversupply concerns in the near/mid term
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Again, this was a very positive update
$AAOI $LITE $COHR $GLW $CIEN $NOK etc.
Gaetano@crux_capital_
This is a really big deal, and it needs to be understood. $AAOI $SIVE $AXTi $LITE $GLW $NOK etc. Much of the run up in the Photonics basket was due to the fact they many of these optical components are necessary for the AI buildout Naturally, with any hardware cycle you run the risk of over supply With all these players massively expanding capacity, what happens if demand slows down? This industry check from Goldman Sachs provides on angle of clarity, and it shouldn't be glanced over. They labeled: > Optical Cables > Optical Connectors > Optical Devices > InP Substrates Understanding how the supply / demand balance is at each layer is key to understanding how this theme will play out, whether it is durable or not, and what to watch for for signs of cracking. This is one of the biggest signals we have received in a while. I wrote up an entire report on it, just talking through the different layers and what the impact is on different stocks open.substack.com/pub/cruxcapita… From $AXTI to $AAOI to $SIVE to $NOK and everything in between It will be of value to anyone who reads it. If you want to do the research yourself, take the images from the linked post, plug it into your favorite LLM, include transcripts from the companies that you want to learn more about, ask questions around how the upstream and downstream level of constraint impacts that company, what their capacity ramps looks like, what they are saying about customer demand and so on. Start there. I'll leave you with this... "A supply environment that remains constrained even in the face of massive capacity ramp is very bullish".
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Turns out $CIEN just from ran the selloff
Basing strong now.
Narrative keeps improving.
Market still has to wake up to what is coming with Ciena as well.
Tick tock.
Gaetano@crux_capital_
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I think the next 2 quarters for $COHR are going to be insane
This is when the 6-inch InP ramp really gets tested
We have visibility into the supply / demand gap remaining tight through 2027
So if you can bring on massive supply, with good margins, you are going to make an insane amount of money
I think Coherent is that company.
But, time will tell.
Gaetano@crux_capital_
Everyone is working on 6-inch capacity... $COHR $AAOI $LITE $NOK But do you know who is the furthest ahead?
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