Coherent quadruples InP wafer output amid AI optics surge

The rapid scaling of AI infrastructure is driving demand for optical interconnects, prompting one of Nvidia’s key suppliers to significantly expand its production capacity. Coherent, a photonics vendor specializing in semiconductor lasers and optical components, announced plans to quadruple its indium phosphide (InP) wafer output at its Sherman, Texas, facility. The expansion is part of a broader push to meet the growing need for high-speed data transmission in AI systems, where traditional copper interconnects are increasingly inadequate.

Coherent’s $650 million investment in the Sherman fab will double the facility’s footprint and create approximately 1,000 new jobs, with over half dedicated to advanced manufacturing and engineering roles. The project is supported by a mix of public and private funding, including $2 billion from Nvidia, $20 million from the Texas Semiconductor Innovation Fund and local economic development groups, and up to $50 million from the CHIPS and Science Act. The company has not disclosed a timeline for completion but emphasized the urgency of scaling production to keep pace with AI-driven demand.

Why optics are critical for AI scaling

As AI clusters grow from dozens to thousands of accelerators, the limitations of copper-based interconnects become apparent. Optical solutions, which use light to transmit data, offer higher bandwidth and lower latency over longer distances, making them essential for large-scale AI deployments. InP wafers are a key component in lasers, photodetectors, and modulators used in these optical systems. Coherent’s expansion reflects a broader industry shift toward photonics as AI workloads demand faster, more efficient data transfer.

Nvidia’s involvement underscores the strategic importance of optical components in its long-term roadmap. The GPU manufacturer has made multiple high-profile investments in photonics vendors this year, including $2 billion each in Lumentum and Marvell. These moves align with Nvidia CEO Jensen Huang’s prediction at Computex 2026 that optics would propel companies like Marvell to trillion-dollar valuations. While such projections remain speculative, the investments signal confidence in the sector’s growth.

Industry implications and challenges

Coherent’s expansion is part of a larger trend of semiconductor suppliers ramping up production to support AI infrastructure. However, the optics market faces unique challenges, including the complexity of manufacturing InP wafers and the need for specialized expertise. The Sherman fab’s expansion aims to address these bottlenecks by increasing output and creating a pipeline of skilled labor.

The project also highlights the role of government funding in semiconductor manufacturing. The CHIPS and Science Act, which contributed up to $50 million to the Sherman expansion, was designed to bolster domestic production of critical technologies. While the act has faced criticism for its slow disbursement of funds, Coherent’s project demonstrates its impact on scaling advanced manufacturing in the U.S.

For datacenter operators and AI infrastructure providers, the expansion could ease supply constraints for optical components. However, the timeline for increased production remains unclear, and the industry will need to monitor whether Coherent and other vendors can meet the projected demand. If successful, the expansion could accelerate the adoption of optical interconnects in AI systems, enabling larger and more efficient deployments.

What to watch

The Sherman fab’s expansion is a bellwether for the optics industry’s ability to scale alongside AI infrastructure. Key factors to monitor include the project’s completion timeline, Coherent’s ability to hire and train the necessary workforce, and the broader adoption of optical interconnects in datacenters. Additionally, Nvidia’s continued investments in photonics vendors will shape the competitive landscape, with potential ripple effects across the semiconductor supply chain.