What Happened

A shortage of indium phosphide (InP) lasers is threatening AI data centers as demand for high-speed optical components outpaces supply by 30-50%. Export controls, limited production capacity, and a concentrated supplier base are exacerbating the issue.

Who Is Affected

AI data centers relying on high-speed networking are most impacted. Companies like Lumentum, AXT, and Coherent are directly involved, with Lumentum citing unusually strong demand for optical components due to AI infrastructure expansion.

Market Impact

• Delays in AI infrastructure projects due to incomplete networks.
• Increased costs for optical components and related technologies.
• Geopolitical risks from China's export controls on InP-related materials.

What to Watch

Monitor investments by Lumentum, AXT, and Coherent in expanding InP production capacity. Also, track geopolitical developments around indium exports and licensing delays, which could further disrupt supply chains.