Deutsche Bank Rates AI Hardware Pick-and-Shovel Stocks: Lumentum and Coherent Named Top Conviction Buys
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Deutsche Bank launched coverage of the AI hardware sector, naming laser suppliers Lumentum and Coherent as its highest-conviction buys — compute expansion is pushing demand down the supply chain to the optical layer that every AI architecture depends on.
What is Deutsche Bank's core thesis here?
Analyst Gianmarco Conti starts from a simple premise: AI saves users time, and every application — chatbots, enterprise agents, coding assistants — consumes compute to do it.
This means → compute investment is spreading from GPUs to CPUs and other processing layers, opening a window for hardware suppliers beyond GPU makers.
Deutsche Bank calls these companies "pick-and-shovel" plays — in a gold rush, the surest money goes to whoever sells the shovels. The bet is not on which AI app wins; it is on infrastructure being needed no matter what.
Why are laser suppliers the highest-conviction picks?
Lumentum (LITE) and Coherent (COHR) both received buy ratings — the strongest conviction calls in the entire coverage.
Conti's logic: whether an AI data center uses pluggable optics or co-packaged optics (CPO — embedding optical components directly inside the chip package), both architectures need lasers from these two companies.
In plain terms = lasers are the "light source" that moves data inside a data center. The architecture can change; the light source cannot be skipped — that is why they stand out.
Both are currently supply-constrained, sold out, and raising prices. Nvidia just invested $2 billion in each.
Who does Deutsche Bank favor in networking and systems?
Arista Networks (ANET) received a buy. Conti argues its software premium holds in enterprise and sovereign-AI markets — the company guides for 40% growth, and strong free cash flow is not yet fully reflected in the valuation.
Cisco (CSCO) received a buy. Cisco integrates chips, optics, and systems under one roof and has booked $9.3 billion in hyperscaler AI orders. This means → it is a lower-risk way to play the AI buildout.
Hewlett Packard Enterprise (HPE) is the fifth buy-rated name; Deutsche Bank offered no additional emphasis.
Which companies only received a hold?
A10 Networks (ATEN), Dell Technologies (DELL), and Ingram Micro (INGM) were all rated hold, with no clear upside case laid out.
This reflects a screening principle: Deutsche Bank reserved buy ratings for companies with a supply bottleneck or a clear catalyst — names without one were sidelined.
What needs to be verified next?
The key uncertainty sits in the laser segment: how long can the supply bottleneck last, and will Nvidia's strategic investments convert into sustained orders?
This means → the valuation premium on Lumentum and Coherent is a bet that "sold out" persists — once capacity expands or competitors enter, the premium reprices.
In plain terms = Deutsche Bank gave its highest conviction, but the market ultimately needs to see how long pricing power and supply tightness hold up.
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