All of a sudden, photonics seems to be one of the hottest fields among tech enthusiasts. Optical and photonics technology is massively important for AI applications that must field tremendous data throughput that exceeds the limits of traditional wiring. With photonics, data can be zipped through fiber-optic networks at far higher throughput than copper allows, with the added benefits of low latency and better energy efficiency.
Beyond its applications today, photonics may become even more important in the coming years. The reason for this is that many of the benefits that photonics technology provides to AI applications have the same value for quantum technology. For investors, an alternative to picking up pure-play quantum tech firms like IonQ Inc. (NYSE: IONQ)—even for all the many reasons these companies may appeal to those with a healthy appetite for risk—is to look at companies making photonics tools that could power next-gen quantum tech down the line.
Lumentum's Major Rally May Pose Valuation Concerns, But Revenue Momentum Is Real
Lumentum Holdings Inc. (NASDAQ: LITE) is a photonic technologies firm that got off to a strong start to the year and done a fairly good job of maintaining that momentum. Overall, LITE stock has doubled year to date (YTD), despite some horizontal trading in the last several months.
While the massive rally has not helped alleviate concerns about Lumentum's valuation—the firm currently trades at nearly 142x earnings—analysts are still largely optimistic about its prospects going forward. Two-thirds of the 21 analyst ratings for LITE shares are Buys, and Wall Street anticipates more than 32% more in possible upside to come.
Lumentum's capacity to weather the storm in recent weeks, as AI stocks have taken a hit, is impressive but perhaps not surprising given the massive success the company has seen in recent periods. In the latest quarter, for example, Lumentum boosted revenue by about 90% year over year (YOY) to $808 million, with a strong non-GAAP operating margin coming in at 32.2% as well. Management expects another record quarter, with no signs of slowing sales momentum.
A Smaller Alternative That Has Room to Grow
At a $4-billion market cap, IPG Photonics Corp. (NASDAQ: IPGP) is just a fraction of the size of the $60-billion behemoth Lumentum, but that doesn't mean investors should overlook this fast-growing alternative. IPGP shares are up about 37% YTD as the firm reported a strong quarter earlier in the year. Q1 2026 revenue was $265 million, a 17% YOY improvement, and bookings improved as well. Adjusted earnings per share (EPS) of 29 cents more than tripled YOY, thanks in large part to the strength of IPG's industrial solutions business.
IPG has the benefit of multiple angles within the photonics space, and its products and services also cover medical, semiconductor, defense, and other applications. This helps make the firm resilient in the face of sector-wide turmoil, but it doesn't help IPG deal with ongoing tariff headwinds.
Nonetheless, a strong balance sheet including $813 million in cash and short-term investments as of the end of the last quarter should give IPG the necessary runway to continue to support expansion, which will be vital if the firm hopes to compete with larger players in the years to come. With only nine analyst ratings, IPGP shares are not nearly as well covered as rivals like LITE. However, two-thirds of analysts view IPGP stock as a Buy, with about 40% in predicted upside.
A Speculative Play With Big Defense Plans
nLight Inc. (NASDAQ: LASR) is comparable in size to IPG, though its 100% YTD return outshines its competitor's. This company reported 55% YOY revenue gains in the latest quarter, although at an absolute level, sales were much more modest: nLight saw $80.2 million in revenue for the period. Margins and adjusted EBITDA were also strong, a sign that the company should be able to continue strengthening its balance sheet.
As a pre-profit company, nLight necessarily carries a higher level of risk than the other firms on this list.
Still, a massive new contract with the Pentagon should help to firm up the company's defense-focused business for some time to come. Regardless, investors should view this play as more speculative than other photonics businesses.
That doesn't stop analysts from adopting a bullish viewpoint. LASR has 11 Buy ratings and a single Sell, and analysts see moderate upside even after its sizable rally YTD.
The article "3 Photonics Companies Making Quantum Tech Possible" first appeared on MarketBeat.
