This Nvidia-Backed Company Just Entered the $154 Billion AI Photonics Market. Does This Make the $13 Stock a No-Brainer Buy?
Late last year, Nvidia made a strategic investment in Nokia as part of a collaboration on AI infrastructure projects.
By Adam Spatacco
As graphics processing unit (GPU) clusters grow larger and more power-hungry, electrical connections are reaching their limits when it comes to speed, heat, and energy use. In separate announcements, both Goldman Sachs and Nokia (NOK 4.47%) recently flagged photonics as the next critical layer in artificial intelligence (AI) infrastructure. Optical networking, which uses light to move data, offers an alternative path forward.
Let's analyze this enormous commercial opportunity and explore what it could mean for Nokia as the Finnish company quietly transitions from yesterday's leader of mobile devices to an AI networking powerhouse.
What is photonics, and why does it matter for AI?
Photonics is the process of generating, controlling, and detecting light (photons) to transmit information. In AI data centers, silicon photonics takes this process a step further by integrating lasers, modulators, and detectors directly onto chips using existing semiconductor manufacturing lines. This integration can deliver measurable advantages over traditional electrical wiring, including higher bandwidth, lower latency, and reduced power consumption.
As AI training demands ever-larger clusters of GPUs, electrical signals are struggling to keep up without excessive heat and energy waste. Photonics solves this by enabling dense, energy-efficient optical links between chips and racks. This is essential, as compute power is no longer the main constraint of AI development -- connectivity is. Without scalable optical solutions, the next generation of AI applications will be limited by underlying infrastructure rather than silicon's capacity capabilities.
How large is the optical networking market?
Goldman Sachs calls optical networking the next mega-trend in AI infrastructure. Goldman's analysts project the total addressable market (TAM) for optical networking tied to AI to grow ninefold, rising from roughly $15 billion in 2026 to $154 billion by 2028.
The investment bank segments optical networking across two key subcategories. Scale-up networking, which is high-bandwidth connections within racks, accounts for $106 billion of the total TAM. Within scale-up networking are co-packaged optics (CPO), which integrate optical engines directly with processors for maximum efficiency. Goldman estimates CPO to be a $91 billion opportunity at scale.
How is Nokia making a push into photonics?
Nokia is scaling its role in the photonics-driven data center shift. The company recently announced that it is expanding advanced test and packaging operations in Allentown, Pennsylvania, specifically focused on photonic chips for optical modules used in AI and telecom networks.
To better demonstrate that this isn't merely a marketing stunt, Nokia's first-quarter 2026 financial results showed clear momentum across the AI infrastructure supply chain. The company's AI & Cloud segment grew 49% year over year and already accounts for 8% of total sales. Moreover, Nokia's Optical Networks segment grew 20%, driven by AI & Cloud design wins for both pluggables and line systems. Meanwhile, the company booked 1 billion euros (~$1.1 billion) in new AI infrastructure orders during the first quarter alone.
When you measure this progress in combination with Nvidia's $1 billion strategic investment in late 2025 for AI-native networking collaborations, Nokia appears to be swiftly transitioning from a traditional telecom player to a meaningful contributor of AI infrastructure solutions via optical technologies.
Despite a strong rally -- Nokia stock has risen roughly 108% so far this year -- I think the company remains an attractive buy. Recent insider buying reinforces my view: In May, several executives and Board members, including Nokia CEO Justin Hotard, collectively purchased millions of dollars of Nokia stock, even as shares roared on heavy momentum.
Nokia is delivering tangible progress in AI infrastructure and making impressive moves across optical networking and photonics solutions. Recent insider buying, combined with secular AI-driven demand and hyperscale capacity expansions, suggests Nokia stock has further upside as the optical networking supercycle begins.