Is "light in, storage out" becoming the new narrative for trading in US stocks?

After the narrative of AI chip valuations reaching their peak gradually became a market consensus, funds began to search for the next new story linked to AI.

The phrase "light in, storage out" is a brand new narrative born in this context—storage is retreating, while optical communication takes over.

1. What is optical communication? Why can't AI do without it?

The term "light" refers to optical communication—communication technology and industry that transmits information using light signals (mainly through optical fibers). Its core is to complete the mutual conversion between electrical signals and optical signals, with key products including optical modules/optical transceivers, lasers, photodetectors, optical fibers, and various optical devices.

This industry is not new; it has long served the telecommunications backbone and traditional data center interconnections, characterized by high bandwidth, low loss, and strong anti-interference, suitable for large-capacity transmission over medium to long distances. Currently, its focus has shifted to high-speed interconnections within data centers (between racks and servers) and across data centers.

The connection to AI is logically sound: the training and inference of large AI models rely on large-scale GPU/accelerator clusters, which require frequent exchanges of massive amounts of data—gradients, parameters, activation values—resulting in extremely high east-west traffic. Traditional copper cables (electrical interconnections) have already hit physical limits in high-speed scenarios: short transmission distances, rapid signal attenuation, high power consumption, and severe crosstalk. When single-channel rates exceed 100G/200G, the usable distance of copper is compressed to a very short range, unable to support the expansion of large-scale clusters.

Optical interconnects precisely address these pain points: higher bandwidth density, longer transmission distances, and relatively better energy efficiency. It has become a key link in breaking through the scale bottleneck of AI clusters—GPUs determine the computing power limit, while optics determine whether this computing power can truly be interconnected.

2. "Light in, storage out": The stock price trends have already written the answer

This narrative is valid largely because the stock price trends of the two sectors have diverged significantly.

On the storage side, companies like Micron and SK Hynix have already fully priced in expectations of tight supply and demand, price increases, and profit revisions. As the rate of increase in storage prices slows and funds become crowded, coupled with growth concerns from macro data such as non-farm payrolls, funds have begun to reduce positions, putting pressure on the sector against the trend.

On the optical communication side, however, the situation is completely different: companies like AAOI, COHR, and LITE have surged due to performance validation, accelerated upgrades from 800G to 1.6T, and confirmed demand from AI cluster expansions. Funds are flowing from the "fully priced" storage sector to the "more clearly defined performance slope" of optical communication—these three major optical communication stocks in the U.S. have risen nearly 40% to 50% since August.

3. LITE's perfect earnings report: sealing the narrative

After the U.S. stock market closed last night, LITE delivered a nearly perfect earnings report, with hardly any issues to be found.

Both revenue and profit exceeded market expectations, which is not surprising. What is truly stunning is the profit margin: the gross margin has surpassed 50% for the first time, and the operating profit margin reached 36.4%—looking across the entire optical communication sector, only LITE can achieve this level of profit margin.

Even more exaggerated is the guidance: the company expects an operating profit margin of around 40% next quarter. It’s worth noting that management previously believed that an operating profit margin of around 40% could only be achieved when quarterly revenue reached $2 billion; now, with expected revenue of only $1.25 billion next quarter, the operating profit margin is projected to touch around 40%. The speed of profit realization is far outpacing revenue growth.

Strong earnings data, robust guidance, and maintaining a year-on-year revenue growth of 20% to 25% for several consecutive quarters, with profit margins continuously expanding—this is the kind of earnings report the market loves to see.

There are two details worth noting from the earnings call. First, management repeatedly mentioned that the biggest issue with lasers currently is still insufficient capacity, with market demand far exceeding supply, and production speeds not keeping up with customer demand. Second, they specifically addressed market concerns regarding the progress of CPO: LITE's largest CPO customer has not only not delayed production plans but has further accelerated demand, leading to an even larger supply-demand gap for high-power lasers compared to the previous quarter.

4. In conclusion: Before chasing optical communication, think about how to get on board

Next, another optical communication giant, COHR, will announce its latest earnings report tomorrow, which is worth paying close attention to. If COHR also delivers strong validation, can the narrative of "light in, storage out" advance further?

However, looking at it calmly, the risks are also evident: the three major optical communication stocks have already risen by 40% to 50% in August, and jumping in now carries a strong scent of chasing highs; earnings report nights are known for their volatility, and if COHR's results fall short of expectations, a high-level pullback could be severe. The awkwardness of this position lies in—believing in the narrative but not wanting to buy at the peak.

In a market where narratives rotate, being early does not necessarily mean being right; surviving is what matters. Equip yourself with the right tools before discussing how to get on board.

Risk Warning

The content of this article is for market information sharing only and does not constitute any investment advice, recommendations, or trading commitments. The financial data, stock price trends, and industry narrative analysis mentioned in this article are all compiled from publicly available information and the author's personal judgment, and do not guarantee accuracy, completeness, or timeliness; past performance does not represent future results. The financial market is highly volatile, especially before and after major events such as earnings reports, where related securities and derivatives prices may experience significant fluctuations. Investors should fully understand the associated risks and independently assess their financial situation, risk tolerance, and investment objectives, and bear the risks and consequences of their investment decisions.