Newer generations of large language models have gotten more efficient, but also more intensive with less room for latency. Consequently, the role of copper in AI data centers for optimal information processing may have run its course. Light offers a powerful solution as data centers continue to scale, including faster speeds, improved efficiency, lower temperatures and better immunity to interference over larger distances.
Optical connectivity has become a critical AI buildout bottleneck, driven by bandwidth-intensive workloads and relentless growth in data movement. Roundhill believes that the ongoing photonics transition and optical connectivity represent a secular growth story tied to the multi-decade buildout of AI infrastructure.
Optics Demand Takes Off
In 2025, global data center optical transceiver revenue reached roughly $17 billion. Nomura Research estimates that revenue can grow to $48 billion in 2026, $97 billion in 2027 and $144 billion in 2028.
Data Needs to Move Faster
Today, optical transceiver shipments are dominated by 800 and 400 gigabit speed units, with small shares toward 200G, 100G, and 1.6 terabit transceivers. This is because these transceivers are the state-of-the-art offering today, but will grow increasingly antiquated as the AI buildout requires faster and faster processing speed. By Nomura’s work, 800G and 1.6T transceivers are expected to grow their share of total optical shipments as the buildout proceeds. In 2027 and 2028, there is even an expectation that some shipments will consist of 2.4T and 3.2T units.
The Silicon Shift in Photonics
Silicon photonics are another example of the technological advancements taking place within the optical industry, and the expectation for how in-demand they could be. The next step is building optical components that generate, steer, and detect light out of silicon on the same production lines that make regular computer chips. In theory, this has the potential to make the optical components smaller, more integrated, and more cost effective. Goldman Sachs expects silicon photonics to jump from 6% of data-center optical modules in early 2024 to nearly half by the end of 2028.
Light Moving Inside the Chip
Co-packaged optics (CPOs) takes the ongoing technological revolution within photonics and optics a step further. CPOs are an advanced technology that integrates optical transceivers and photonic chips directly onto the same substrate or package as high-speed processing chips. This integration drastically reduces power use and scales bandwidth. Goldman Sachs high-end estimates see CPOs taking a 59% share of the AI networking market by 2028.
Photonics & Optics Go Global
Lumentum and Coherent are two of the most popular U.S.-listed photonics and optics stocks in the market today. But the optical module market is genuinely global, and its single largest player is Innolight (300308 CH), a China-listed manufacturer that has held the top share of data center optical transceivers for years. Nomura estimates Innolight's share sitting around 23% to 27% through 2025, then climbing above 30% as the AI buildout accelerates through 2028. Staying focused on solely U.S names understates the potential of the global photonics and optics industry.
Meet LYTE
Roundhill believes capturing the secular opportunity in photonics and optics means looking past the familiar U.S. names to a global supply chain that shifts as the technology moves from pluggable optics toward silicon photonics and co-packaged designs. The Roundhill Photonics & Optics ETF (LYTE) is actively managed to navigate this landscape, seeking to offer exposure to a concentrated basket of global photonics and optics companies in a single ticker.
Learn More About LYTE: https://www.roundhillinvestments.com/etf/lyte/
1Goldman Sachs: Optical Networking: The next mega trend in AI infrastructure.
2Nomura Global Markets Research: Yuanjie Semiconductor Technology Poised to become a global optical chip leader
Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. For a prospectus or summary prospectus, if available, with this and other information about the Fund, please call 1-855-561-5728 or visit our website at www.roundhillinvestments.com/etf/lyte/. Read the prospectus or summary prospectus carefully before investing.
Photonic and Optical Companies Risk. Photonic and Optical Companies may be subject to rapid changes in technology, intense competition, government regulation, and obsolescence risk. Securities of such companies may be subject to greater price volatility than securities of companies in other sectors, particularly over the short term. The prices of securities of companies in these industries may fluctuate widely due to competitive pressures, rapid product cycles, changes in the regulatory environment, and shifts in supply and demand dynamics. Many Photonic and Optical Companies are relatively small and may have limited product lines, markets, financial resources, or personnel, making them more susceptible to business risks and adverse developments. Photonic and Optical Companies may also be dependent upon government contracts or subsidies, which may be subject to cancellation, renegotiation, or delay in payment. Additionally, the development and commercialization of photonic and optical technologies may be contingent upon the broader adoption of related technologies, including artificial intelligence, data center infrastructure, and advanced telecommunications networks. A slowdown or disruption in the growth of these related sectors could materially and adversely affect the revenues and profitability of Photonic and Optical Companies in which the Fund invests.
Line of Business Risk. Certain companies included in the Fund’s portfolio will be engaged in other lines of business unrelated to the development of optical and/or photonic products, and these lines of business could adversely affect their operating results. The operating results of these companies may fluctuate as a result of these additional risks and events in the other lines of business. Despite a company’s possible success in activities linked to its development of optical and/or photonic products, there can be no assurance that the other lines of business in which these companies are engaged will not have an adverse effect on a company’s business or financial condition.
Active Management Risk. The Fund is actively-managed and its performance reflects investment decisions that the Adviser and/or Sub-Adviser makes for the Fund. Such judgments about the Fund’s investments may prove to be incorrect. If the investments selected and the strategies employed by the Fund fail to produce the intended results, the Fund could underperform as compared to other funds with similar investment objectives and/or strategies, or could have negative returns.
Asia Risk. The Fund invests significantly in the securities of Asian issuers. As such, the Fund is subject to certain risks specifically associated with investments in the securities of Asian issuers. Many Asian economies have experienced rapid growth and industrialization, and there is no assurance that this growth rate will be maintained. Some Asian economies are highly dependent on trade, and economic conditions in other countries within and outside Asia can impact these economies. Certain of these economies may be adversely affected by trade or policy disputes with its major trade partners. There is also a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial intermediaries. Certain Asian countries have experienced and may in the future experience expropriation and nationalization of assets, confiscatory taxation, currency manipulation, political instability, armed conflict and social instability as a result of religious, ethnic, socio-economic and/or political unrest. In particular, escalated tensions involving North Korea and any outbreak of hostilities involving North Korea could have a severe adverse effect on Asian economies. Governments of certain Asian countries have exercised, and continue to exercise, substantial influence over many aspects of the private sector. In certain cases, the government owns or controls many companies, including the largest in the country. Accordingly, government actions could have a significant effect on the issuers of the Fund’s securities or on economic conditions generally. Recent developments in relations between the U.S. and China have heightened concerns of increased tariffs and restrictions on trade between the two countries. An increase in tariffs or trade restrictions, or even the threat of such developments, could lead to a significant reduction in international trade, which could have a negative impact on the economy of Asian countries and a commensurately negative impact on the Fund.
Concentration Risk. The Fund is concentrated in the industry or group of industries comprising the information technology sector. The Fund may be susceptible to an increased risk of loss, including losses due to adverse events that affect the Fund’s investments more than the market as a whole, to the extent that the Fund’s investments are concentrated in the securities and/or other assets of a particular issuer or issuers, country, group of countries, region, market, industry, group of industries, sector, market segment or asset class.
Depositary Receipts Risk. Depositary receipts may be less liquid than the underlying shares in their primary trading market. Any distributions paid to the holders of depositary receipts are usually subject to a fee charged by the depositary. Holders of depositary receipts may have limited voting rights, and investment restrictions in certain countries may adversely impact the value of depositary receipts because such restrictions may limit the ability to convert the equity shares into depositary receipts and vice versa. Such restrictions may cause the equity shares of the underlying issuer to trade at a discount or premium to the market price of the depositary receipts.
Information Technology Companies Risk. Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Like other technology companies, information technology companies may have limited product lines, markets, financial resources or personnel. The products of information technology companies may face obsolescence due to rapid technological developments, frequent new product introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies in the information technology sector are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. Information technology companies are facing increased government and regulatory scrutiny and may be subject to adverse government or regulatory action.
International Closed Market Trading Risk. To the extent securities held by the Fund trade on non-U.S. exchanges that are closed when the Fund’s primary listing exchange is open, there are likely to be deviations between the current price of an underlying security and the last quoted price for the underlying security (i.e., the Fund’s quote from the closed foreign market) used for purposes of calculating the Fund’s NAV, resulting in premiums or discounts to the Fund’s NAV and bid/ask spreads that may be greater than those experienced by other funds. In addition, shareholders may not be able to purchase and sell shares of the Fund on days when the NAV of the Fund could be significantly affected by events in the relevant foreign markets (e.g., market holidays, market trading halts or significant volatility in foreign markets).
New Fund Risk. The Fund is a recently organized investment company with a limited operating history. As a result, prospective investors have a limited track record or history on which to base their investment decision.
Non-Diversification Risk. As a “non-diversified” fund, the Fund may hold a smaller number of portfolio securities than many other funds. To the extent the Fund invests in a relatively small number of issuers, a decline in the market value of a particular security held by the Fund may affect its value more than if it invested in a larger number of issuers. The value of the Fund Shares may be more volatile than the values of shares of more diversified funds.
Swap Agreements Risk. The Fund may utilize swap agreements to derive its exposure to Photonic and Optical Companies. Swap agreements may involve greater risks than direct investment in securities as they may be leveraged and are subject to credit risk, counterparty risk and valuation risk. A swap agreement could result in losses if the underlying reference or asset does not perform as anticipated. In addition, many swaps trade over-the-counter and may be considered illiquid. It may not be possible for the Fund to liquidate a swap position at an advantageous time or price, which may result in significant losses.
Roundhill Financial Inc. serves as the investment advisor. The Funds are distributed by Foreside Fund Services, LLC which is not affiliated with Roundhill Financial Inc., U.S. Bank, or any of their affiliates.