Deutsche Bank initiated coverage on eight AI hardware stocks, naming Lumentum and Coherent as its highest-conviction picks in the AI connectivity era. The bank placed buy ratings on five names including Cisco and Arista Networks, with Nvidia having invested $2 billion in each of the top two picks.
Deutsche Bank initiated coverage on eight AI hardware stocks Monday, naming optical suppliers Lumentum and Coherent as its highest-conviction picks in the connectivity era.
"The first wave of the AI buildout was a compute story, the next wave is a connectivity story," Gianmarco Conti, analyst at Deutsche Bank, said.
Conti placed buy ratings on Lumentum, Coherent, Arista Networks, Cisco Systems and Hewlett Packard Enterprise, and hold ratings on Dell Technologies, Ingram Micro and A10 Networks. He said Lumentum and Coherent "are supply constrained, sold out and raising prices," with Nvidia investing $2 billion in each company to secure purchase commitments.
Shares of Lumentum have climbed 553 percent over the past year and Coherent has gained 204 percent as investors piled into the networking trade. The initiation extends institutional backing to the thesis that optical connectivity, not just GPUs, will capture the next wave of AI infrastructure spending.
Conti called Lumentum the "purest expression" of his investment thesis, noting its III-V laser is "the one component that every path requires" across pluggable and co-packaged optics architectures. The company "wins under every architecture," he said. Coherent differentiates through vertical integration, manufacturing lasers and transceivers from the raw-materials layer through to the modules that house them.
Cisco received a buy rating as the "only large cap networker" touching all three layers of the hardware stack — custom silicon, optical components and systems. Conti cited $9.3 billion in hyperscaler AI orders. Cisco's Kevin Wollenweber, general manager of data-center and internet infrastructure, told MarketWatch that "the connectivity between" compute and storage "becomes a critical bottleneck" in AI systems.
HPE's buy rating rests on networking as its "earnings engine," with Juniper Networks and Aruba Networks under the HPE Networking umbrella expected to contribute a "disproportionate share" of operating profits. Conti also cited HPE's liquid-cooling technology for data centers. Arista's buy rating reflects exposure to enterprise and sovereign AI deployments, while Cisco's combination of silicon, optics and networking systems underpins its recommendation.
The initiation shows sell-side conviction broadening beyond GPU makers to the optical and networking layer of AI infrastructure. Investors will watch whether the buy ratings translate into sustained buying in Lumentum and Coherent, and whether Dell's earnings report tonight offers further read-through on AI hardware demand.
This article is for informational purposes only and does not constitute investment advice.
