By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
Nvidia's minority stakes in Lumentum, Coherent, and Marvell aim to secure supply chain access, but the risk of commoditization and margin erosion post-2026 is significant. The key to Nvidia's success lies in the terms of its offtake agreements.
Risk: Commoditization of optics and erosion of Nvidia's margins post-2026 due to capacity expansion by suppliers without contractual anchors.
Opportunity: Securing preferential access to 800G/1.6T transceiver capacity during a period of extreme supply-demand mismatch.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Nvidia has made strategic investments in Lumentum, Coherent, and Marvell Technology in recent months.
These investments enable Nvidia to maintain strong control over the broader AI hardware market.
Nvidia (NASDAQ: NVDA) has been one of the best-performing stocks in the artificial intelligence (AI) era, which isn't surprising, as its chips have been instrumental in the training of large language models (LLMs) over the years.
An investment of $1,000 made in Nvidia stock three years ago is now worth more than $5,400. The good news for Nvidia investors is that its growth continues to accelerate. This was evident from Nvidia's latest quarterly report. However, the stock's returns have been lukewarm so far this year, with shares gaining just 14% despite the consistently solid growth that Nvidia has been clocking.
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There are a few reasons this may be the case, such as rising competition in AI chips and concerns about Nvidia's ability to deliver further upside after becoming the largest company in the world. However, the market may be making a big mistake by viewing Nvidia's AI prospects in isolation. It has been expanding its wings in AI by investing in other companies that are playing a critical role in this space.
Let's take a closer look at how Nvidia's investments make it a much bigger AI play than the market may realize.
AI is not just about the graphics processing units (GPUs) that Nvidia sells. The booming investment in AI infrastructure has created demand for additional components, such as custom processors and networking products. Nvidia has stakes in companies such as Lumentum Holdings (NASDAQ: LITE), Coherent (NYSE: COHR), and Marvell Technology (NASDAQ: MRVL).
Lumentum and Coherent manufacture optical networking, photonics, and laser components that enable the rapid transfer of large amounts of data in data centers and AI chip clusters. Nvidia announced a $2 billion investment in Coherent in March this year to "support research and development, future capacity and operations as Coherent builds out its U.S.-based manufacturing capabilities."
It also announced a similar investment in Lumentum on the same day for identical reasons. Nvidia notes that optical networks will play a critical role in scaling up AI data centers and factories. That's not surprising, as optical networks support help transfer large datasets with low latency in AI chip clusters, enabling AI accelerators to perform optimally with minimal data loss.
Fast networking and high bandwidth reduce downtime for AI accelerators, such as GPUs. This explains why demand for optical networking components is outpacing supply. McKinsey estimates that demand for high-speed 800 Gbps (gigabits per second) optical transceivers deployed in AI data centers will exceed production by 40% to 60% through 2027.
As a result, the prices of these optical components are rising sharply, driving phenomenal growth for Coherent and Lumentum.
This terrific earnings growth is translating into healthy upside on the stock market. Lumentum stock has jumped by over 1,100% over the past year, while Coherent has clocked 444% gains. Moreover, Nvidia's investments in these companies should ensure it has access to a supply of optical networking components by helping them build additional capacity.
For example, Coherent CEO Jim Anderson pointed out in March that Nvidia's investment will increase the chip giant's "access to include multiple product families to help them build the AI data centers of the future." Similarly, Lumentum is going to invest "in a new fabrication facility to increase capacity and accelerate innovation" following Nvidia's investments.
So, Nvidia is taking steps to ensure that it controls the AI infrastructure supply chain more tightly by investing in the likes of Coherent and Lumentum, which provide critical components necessary for scaling up AI data centers.
Meanwhile, Nvidia's $2 billion investment in Marvell Technology, announced on March 31, is another strategic move. Marvell designs custom AI processors and networking components that are experiencing strong demand as AI inference grows. Nvidia's investment in Marvell will enable it to make rack-scale server systems that integrate custom AI processors, server processors, and networking components into a single platform.
The partnership also strengthens Nvidia's position in optical networking and silicon photonics. What's worth noting is that Marvell designs AI chips and networking components for major hyperscalers and has multiple design wins in the pipeline, poised to go into production over the next couple of years. So, it was easy to see why Marvell raised its full-year guidance when it released its fiscal 2027 first-quarter results (for the three months ended May 2) on May 27.
The company anticipates a 40% increase in revenue in the current fiscal year to $11.5 billion, followed by a larger 45% increase in the next fiscal year. What's more, its earnings growth is also poised to take off.
So, Nvidia's investment in Marvell is likely to become a profitable one in the long run. At the same time, its partnership for custom AI processors should ensure the chip giant remains a dominant player in the AI semiconductor space. In fact, Nvidia CEO Jensen Huang recently remarked that Marvell could become a $1 trillion company, sending the AI stock soaring.
Nvidia's growth was fantastic last quarter, and the good news is that it is poised to step on the gas from the current quarter. Moreover, the company's focus on expanding its AI hardware ecosystem by investing in key infrastructure companies should be a long-term tailwind, especially given that its investments are likely to be profitable.
That's why it would be a good idea to buy Nvidia stock, given its price/earnings-to-growth (PEG) ratio of just 0.69, based on the annual earnings growth it can clock over the next five years, according to Yahoo! Finance. The PEG ratio is a forward-looking valuation metric that considers a company's earnings growth potential, and a reading of below 1 indicates the stock is undervalued.
Nvidia, therefore, seems quite undervalued given its future growth potential. So, it won't be surprising to see it jump significantly in the long run, which is why it makes sense to buy it before it soars higher.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Coherent, Lumentum, Marvell Technology, and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"Nvidia is strategically outsourcing its supply chain expansion via equity stakes to maintain its dominant market position in the AI hardware ecosystem."
The article frames Nvidia’s investments in Lumentum, Coherent, and Marvell as strategic supply chain security, but this is essentially a 'vertical integration by proxy' play. By subsidizing capacity for optical transceivers and custom silicon, Nvidia is effectively de-risking its own bottlenecked supply chain. While the PEG ratio of 0.69 looks attractive, it assumes a linear continuation of current AI infrastructure spending. The real story isn't just the equity stake; it's Nvidia securing preferential access to 800G/1.6T transceiver capacity during a period of extreme supply-demand mismatch. Investors should focus on whether these partnerships create a 'moat' or simply inflate Nvidia’s capital expenditure requirements as they move toward rack-scale system integration.
These investments may actually signal that Nvidia is losing its ability to command supply through sheer scale, forcing them to burn cash to incentivize third-party manufacturers to prioritize their orders over competitors.
"Nvidia's minority stakes do not meaningfully expand its control over AI infrastructure bottlenecks beyond what its existing purchasing power already secures."
The article frames Nvidia's $2B stakes in Lumentum, Coherent, and Marvell as a stealth way to lock up optical networking and custom silicon supply. In reality these are minority positions in public companies already trading at elevated multiples. Optical transceiver shortages may ease after 2026 capacity ramps, and Marvell's custom-ASIC design wins remain unproven at scale. Nvidia's core moat stays its CUDA software and GPU volume, not these side bets. The PEG of 0.69 assumes 5-year growth materializes without margin compression from competition or customer in-sourcing.
Even modest equity ties plus offtake commitments can still prioritize wafers and components for Nvidia during shortages, giving it an edge its rivals lack.
"Nvidia's strategic investments are real but the article overstates their defensive value; optical networking demand is genuine, but valuations have already front-run 2-3 years of growth."
The article conflates minority stakes with supply-chain control. Nvidia's $2B in Coherent and Lumentum are meaningful but represent ~5-8% ownership—hardly 'control.' The optical networking thesis is sound: McKinsey's 40-60% demand/supply gap through 2027 is real, and LITE/COHR valuations have already priced in years of growth (LITE up 1,100% YoY). The real risk: these are capital-intensive businesses with lumpy margins. If hyperscalers vertically integrate or alternate suppliers emerge, Nvidia's minority stake becomes a financial holding, not a moat. The article also ignores that MRVL's 45% revenue growth guidance depends on inference adoption timelines that remain uncertain.
Nvidia's minority positions create *optionality*, not control—hyperscalers like Meta and Google have proven willing to design their own chips (TPUs, Trainium) regardless of who holds equity stakes, and COHR/LITE face execution risk scaling fabs in the US.
"Nvidia's indirect control of the AI supply chain through minority stakes may not deliver a durable moat unless governance rights and demand visibility align."
NVDA's bets in LITE, COHR, MRVL signal a strategy to harden its AI data-center backbone beyond chips. If these suppliers scale capacity on Nvidia's demand, it could ease bottlenecks and shorten cycle times for accelerators. Yet the piece glosses over the fact these are typically minority investments with potentially limited governance; macro bottlenecks in optics pricing and skilled-capacity remain systemic. The real risk: demand could falter or capex push from suppliers could outpace Nvidia's needs, leaving the moat fragile. Without clear rights and timing, this reads as a tailwind that may not materialize in 2026-27.
Even as minority stakes, these moves can yield meaningful leverage if supply remains tight; if Nvidia secures favorable terms and priority, it could materially raise its access to capacity versus peers, turning this into a real moat rather than a hedged bet.
"Nvidia's supply chain investments may inadvertently accelerate the commoditization of its hardware by empowering hyperscalers to build independent, non-Nvidia-dependent infrastructure."
Claude is right to highlight the optionality, but everyone is ignoring the 'customer-as-competitor' risk. By subsidizing LITE and COHR, Nvidia is essentially funding the infrastructure that allows hyperscalers to build their own proprietary interconnects. If Nvidia forces these suppliers to prioritize their specific roadmap, they risk alienating the very cloud providers (Google, Meta) who are currently their largest customers. This isn't just a supply chain play; it's a potential strategic blunder that accelerates the commoditization of Nvidia's own hardware ecosystem.
"Nvidia's funding may accelerate industry-wide price erosion in optics instead of creating exclusivity."
Gemini's customer-as-competitor warning overstates alienation risk. Hyperscalers already run parallel silicon programs like TPUs yet keep buying Nvidia GPUs. The unmentioned downside is that Nvidia's capital infusions could help Lumentum and Coherent expand capacity enough to cut transceiver ASPs across the board, eroding margins on Nvidia's own rack-scale systems once shortages ease post-2026.
"Nvidia's moat depends entirely on contract terms nobody's discussing—equity stakes are window dressing without enforceable volume/price commitments."
Grok nails the ASP compression risk, but both miss the timing arbitrage. Nvidia locks in *today's* premium pricing on these suppliers' equity while securing *tomorrow's* capacity at negotiated rates. Post-2026, yes, transceiver ASPs fall—but Nvidia's offtake agreements likely have volume floors or price floors baked in. The real question: do these contracts protect Nvidia's margins or just its access? The article doesn't disclose terms.
"The moat from minority stakes hinges on contract terms (volume/price floors) rather than ownership; without favorable terms, supplier capacity could erode margins post-2026."
Gemini's 'customer-as-competitor' warning overstates the risk; hyperscalers already run parallel silicon programs and still buy Nvidia GPUs. The real risk is terms, not ownership: if Nvidia's co-investments come with volume and price floors, the moat endures; if not, capacity expansion by suppliers could commoditize optics and erode Nvidia's margins post-2026. Ownership alone doesn't ensure priority—it's the contractual anchors that will determine leverage.
Nvidia's minority stakes in Lumentum, Coherent, and Marvell aim to secure supply chain access, but the risk of commoditization and margin erosion post-2026 is significant. The key to Nvidia's success lies in the terms of its offtake agreements.
Securing preferential access to 800G/1.6T transceiver capacity during a period of extreme supply-demand mismatch.
Commoditization of optics and erosion of Nvidia's margins post-2026 due to capacity expansion by suppliers without contractual anchors.