Nvidia has invested $2 billion in photonics firm Coherent to accelerate the adoption of laser-based optical technology in data centers, enabling faster and more efficient data transmission compared to traditional electrical connections. Coherent is expanding its U.S. manufacturing capacity, particularly in Texas, to meet rising demand and strengthen domestic production of key photonics components like indium phosphide lasers.
Nvidia has invested $2 billion in Coherent, a leading photonics firm, to advance the use of lasers and optical technology in data centers. The discussion begins by explaining the critical role of lasers in server design and data center communication. Lasers, or photonics, use light to transmit data, which is faster and more power-efficient than traditional electrical signals. As data centers handle increasing amounts of data, the shift from electrical to optical connections is accelerating, making photonics technology increasingly essential.
Coherent’s CEO highlights the long-standing partnership between Coherent and Nvidia, dating back over twenty years, including through Nvidia’s acquisition of Mellanox. While Nvidia has developed its own silicon photonics, it relies on Coherent’s deep expertise in photonics to push the boundaries of data center architecture. The main advantage of optical technology is its ability to transmit large volumes of data efficiently, overcoming the physical limitations of electrical transmission as data rates continue to rise.
The market has responded positively to this trend, recognizing the ongoing transition from copper (electrical) to optical connections in data centers. Demand for photonics components is exceptionally strong, not only from Nvidia but also from major cloud service providers and hyperscalers. Coherent is rapidly expanding its manufacturing capacity to keep up, with plans to double its production of indium phosphide—the key material used in lasers—this year.
A significant portion of Coherent’s manufacturing expansion is taking place in the United States, particularly at their facility in Sherman, Texas. The company emphasizes its commitment to U.S. manufacturing, with over 20 sites across 13 states, and is ramping up laser production domestically to meet Nvidia’s and other customers’ needs. This move also addresses concerns about the lack of large-scale photonics manufacturing capacity in the U.S., as much of the industry’s output has traditionally come from China.
To support this growth, Coherent is securing a diversified supply chain for critical raw materials like indium phosphide. The company is working closely with suppliers to ensure a steady flow of inputs, mirroring Nvidia’s strategy of securing manufacturing capacity. Coherent’s global footprint allows it to ramp up production at multiple sites, but the focus on U.S. manufacturing aligns with broader industry and government goals to strengthen domestic capabilities in advanced optical technologies.