"Top Gun" pilots aren't the only ones feeling the need for speed. So are data centers. And that has spurred the drive for silicon photonics systems, which could boost Broadcom stock and others.
With electrical connections in semiconductor systems hitting limits on data transfer speeds, attention has shifted silicon photonics, which uses optical or light connections to move data. Silicon photonics products integrate the optical connections on the chip instead of relying on optical plug-in components in computer racks.
On March 1, Broadcom introduced its first integrated silicon photonics networking product, code-named Bailly. Broadcom stock popped higher after the announcement.
Bailly integrates optical connections with Broadcom's next-generation Tomahawk 5 switch, providing data throughput of 51.2 terabits per second. That doubles switching performance vs. Broadcom's prior product, called Humboldt.
Broadcom says Bailly will be commercially available later this year. The company says it's the world's first fully functional co-packaged optics switch.
Hyperscalers Driving Need For Silicon Photonics
The high-speed connections afforded by silicon photonics systems are especially important for hyperscalers, such as cloud service providers running artificial intelligence applications.
"The hyperscalers — Amazon, Google, Meta and the rest — have a significantly growing need for optics," Manish Mehta, vice president of marketing and operations for Broadcom's optical systems division, told Investor's Business Daily. "They are spending 10 times more on optics than they do on switching silicon for networking. So, they've been demanding innovation in optics for the last decade, since they've been the largest consumers of optics."
The benefits of integrating silicon photonics with switches and processors is higher bandwidth and reduced power consumption, Mehta said. The systems also take up much less space than today's component-based approach to optical networking, he said.
He also notes data centers need optical communications integrated with semiconductors because networking has become a bottleneck for data-intensive workloads such as artificial intelligence.
"We need optical I/O (input-output) to be able to match the growth in compute," Mehta said. "And the only way to do that is through silicon photonics and co-packaged optics."
He added, "You never want I/O to be the reason that you are underutilizing a unit of compute."
Broadcom Stock Benefiting From Silicon Photonics
Susquehanna analyst Christopher Rolland said he expects Bailly to be "a powerful product" that should allow Broadcom to capture some of the massive spending associated with optics. Rolland rates Broadcom stock as positive with a price target of 690.
Broadcom stock ended the regular session March 13 at 616.47.
In addition to Broadcom, companies working on silicon photonics include Cisco Systems, Intel and Marvell Technology.
"They are about a step behind (Broadcom) in terms of their level of integration and they're a little bit behind in terms of the power consumption (reductions) that they can achieve," Mehta said.
Meanwhile, makers of optical networking gear like Ciena and Infinera are seeing limited impact from the trend because they are focused on longer-haul communications.
Aehr Test Systems Seeing Rising Demand
Semiconductor testing equipment maker Aehr Test Systems is hoping for a boost in sales related to silicon photonics.
"With multiple market leaders announcing plans to integrate photonics transceivers into their microprocessors, graphics processors and chipsets, we believe silicon photonics will become a significant market for wafer level test and burn-in over the next several years," Aehr Chief Executive Gayn Erickson said on a Jan. 5 conference call with analysts.
Erickson expects silicon photonics business to take off in the second half of the decade.
Aehr Test Systems and Broadcom stock are both on the IBD Tech Leaders list.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
