Photonics is taking over the market - but there is one detail that investors are missing | Daniel Shebex
In the last two weeks, one word has been driving Wall Street and the Tel Aviv Stock Exchange crazy: photonics. New funds are raising millions with the promise that light will replace electricity. But from in-depth checks I conducted, a surprising picture emerges.
If you thought the capital market was driven only by multiples and quarterly reports, you probably missed the last two weeks. Suddenly, everyone has become a physicist. One word is floating in the air of trading rooms and driving investors crazy: photonics. Let's talk about the numbers. In the USA, the new ETF LYTE, launched just recently, is already managing about 100 million dollars in record time. This hype did not skip us, and here in Israel, Migdal Capital Markets launched for the first time an index fund tracking the Global Photonics iNDEX. Their golden promise? Peak speed, energy savings, and the future of artificial intelligence.
But hold your horses. Remember Warren Buffett's famous saying, "Risk comes from not knowing what you're doing?" Exactly. Before you rush to invest in the new funds, we must understand what photonics is and, more importantly, what the fund managers are not in a hurry to tell you.
What is photonics?
Photonics is a technological field where data is transferred using light particles (photons) instead of traditional electric current. Imagine the old copper cables like a narrow and bumpy dirt road. Data travels on it, gets stuck in traffic jams (bottlenecks), the engine heats up, and a lot of energy is needed to cool it down. Photonics, on the other hand, is like a magnetic roller coaster that flies at the speed of light, without friction, without traffic jams, and without unnecessary heat. Sounds like magic, right? Fund managers tell us that copper is dead and that there is a "copper wall" that must be broken with the help of light.
Copper is fighting back
My recent checks shuffle the cards. From an in-depth techno-economic analysis, a reality emerges that is completely opposite to the "all or nothing" narrative being sold to us. It turns out that right under our noses, a stubborn engineering war is taking place, and copper is fighting back. Meet your new term: Active Electrical Cables (AEC). The industry has by no means given up on electrical cables. Technology companies have developed tiny integrated circuits called "Retimers" and planted them directly into the copper connectors. These components work magic: they clean up noise, amplify the signal, and allow the simple copper cable to transfer data at enormous speeds for distances of 5 to 7 meters.
Why is this so critical for investors? Inside the server cabinets themselves, where artificial intelligence really "thinks," optics and photonics have a severe reliability problem. Their lasers are sensitive to heat, age quickly, and suffer from momentary disconnections (Link Flaps) that ruin entire AI training sessions that cost millions. Active copper is 100 to 1,000 times more reliable than lasers, and at short ranges, it saves about 50% of electricity consumption. Look at Nvidia: in its new flagship system, it did not choose photonics for the internal connection, but built a massive "copper backbone." In the real world, engineering beats fantasy, and copper lowers costs and prevents crashes.
Investment takeaways
Is the photonics sector a bubble? Absolutely not. For long distances, between server farms, copper has no chance and photonics is the only way. But the economics here is a "Goldilocks and the Three Bears" economy. There is a division: for short distances inside the server, active copper rules; for longer distances, photonics wins. Timing is the name of the game, but understanding a company's "economic moat" is no less important. A smart investor does not follow the laser light blindly, but diversifies risks, examining both global photonics companies and those producing active copper.
Next time someone throws the word "photonics" at you with sparkling eyes, take a breath and ask about active copper. Revolutions do not happen in one day, and the boring technology of yesterday is still driving today's profit engines. Knowledge is power, and cleverness always beats the hype.
The author is the CEO of 'Hirschowitz Finance' and the author of the book 'Not Only for Millionaires'. The above should not be seen as investment advice.
