As a leader in the artificial intelligence field, every strategic move by Nvidia (NVDA) attracts significant market attention. Last week, the chipmaker announced strategic partnerships with Lumentum Holdings (LITE) and Coherent (COHR), planning to invest $2 billion in each of these optical technology companies.
This major collaboration quickly triggered a chain reaction. Later last week, S&P Dow Jones Indices announced the latest changes to the S&P 500 Index, with Lumentum and Coherent successfully selected and set to be officially added to the index before the market opens on Monday, March 23rd. Also joining are data center infrastructure provider Vertiv Holdings and pay-TV operator EchoStar.
As the most reliable benchmark index for the U.S. stock market, the S&P 500 comprises 500 leading publicly traded companies. To be included, companies must meet strict criteria: be headquartered in the U.S., have an unadjusted company market capitalization of $22.7 billion or more, exhibit high liquidity, have a float-adjusted ratio over 50%, and meet Generally Accepted Accounting Principles (GAAP) requirements for positive earnings in the most recent quarter and the sum of the trailing four consecutive quarters.
Being added to the S&P 500 not only signifies official recognition and enhanced industry prestige but also triggers passive buying from funds tracking the index, potentially boosting the short-term stock price. For Lumentum and Coherent, this undoubtedly marks a significant milestone in their development.
This index adjustment coincides with the major agreements these two companies reached with Nvidia. According to the deals, Nvidia has not only signed multi-year strategic agreements involving “multi-billion dollar procurement commitments” but will also invest $2 billion in each company. Nvidia emphasized, “Optical interconnect technologies and co-packaged optics are essential for AI factories to continue scaling out, improving energy efficiency and resiliency in large-scale AI networks.”
Coherent and Lumentum primarily provide optical and photonic networking components that have become critical in data centers. By transmitting data over fiber optic cables using lasers and specialized processors, they enable high bandwidth, low latency, and greater energy efficiency. Nvidia’s procurement commitment will help secure access to these key data center infrastructure components.
Over the past year, investors have driven up the stock prices of Coherent and Lumentum by 279% and 932%, respectively. As valuations have risen, Coherent currently trades at a forward P/E ratio of 34 times, while Lumentum’s stands at 45 times. Although the valuations are not low, securing strategic investment from Nvidia and joining the S&P 500 Index makes these two optical component suppliers worthy of close attention.
