Telecom & Networking Equipment: Into the Spotlight: Optical Market Opportunities
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Morgan Stanley projects the optical market will expand from approximately $30 billion in 2025 to over $65 billion by 2028, reflecting a compound annual growth rate near 30%, driven primarily by escalating AI data center speeds and investments. As traditional networking approaches physical limits, emerging technologies—such as copper-to-fiber conversion, co-packaged optics (CPO), and optical circuit switching (OCS)—are expected to generate roughly $23 billion in incremental TAM, pushing total industry capacity toward $90 billion.
Despite these robust tailwinds, the report cautions that current valuations across the optical supply chain are already elevated, trading at 30–40 times fiscal 2028 earnings. Morgan Stanley raised target prices for several key players, including Lumentum (LITE), Coherent (COHR), Ciena (CIEN), and Corning (GLW), while maintaining an In-Line industry rating.
Corning stands out as the most compelling long-term opportunity, uniquely positioned to benefit from the eventual copper-to-fiber transition. Conversely, Lumentum faces the highest sustainability risks regarding profitability, trading at levels implying fiscal 2028 operating margins exceeding 35%, up from approximately 10% in fiscal 2025. The most significant uncertainties remaining in the sector involve the pace of CPO adoption, future laser pricing dynamics, and structural shifts within the transceiver market landscape.