Beyond Nvidia: This Photonics Company Could Be the Future of AI Hardware

When riding a powerful trend, it’s usually a good idea to look for under-the-radar picks associated with the trend instead of the most highlighted and played-out ones.

Adam Othman

Adam is a value investor who is always on the hunt for fantastic undervalued companies that he can share with Motley Fool readers. He follows Warren Buffett and Charlie Munger's investment advice and has completed the Canadian Securities Course. When he's not investing, Adam can usually be found traveling or skiing.

Published January 29, 2025 4:20 pm EST

The rise of artificial intelligence (AI) has been amazing for a wide range of tech stocks. This includes tech companies focused on AI software and related services, as well as hardware companies. The poster boy for AI-driven growth, however, would be Nvidia, which became the most valuable company in the world riding the AI hype. In its case, the growth seems justified as it makes the hardware that facilitates cutting-edge AI model training and execution.

Graphics Processing Units (GPUs), which used to be reserved for computer gaming, first became prominent for crypto mining and are now the hardware “backbone” of AI. But even though Nvidia’s growth phase isn’t over per se, a novel solution from Canada might be a more compelling AI hardware pick.

Illustration of data, cloud computing and microchips — Source: Getty Images

A photonics company

POET Technologies (TSXV: PTK) is still a photonic solutions company aiming to become a global leader in chip-scale photonics. This essentially means integrating photonics at the hardware/processing levels instead of simply at the transportation levels, as we have been using them for ages in the form of fibre optic cables. Its interposer technology bridges the gap between electronics and photonics at the chip level.

The company is now repositioning itself as an AI hardware company. The interposer is capable of enhancing data transmission rates while keeping the hardware costs low. This is a compelling selling point because conventional semiconductor-based AI hardware is becoming increasingly expensive and has other limitations as well (heat). POET’s interposers don’t have this limitation and can significantly reduce the overall cost of hardware used for training and running AI models.

The stock

The POET Technologies stock is no longer flying under the radar. Its bull market phase started in early 2024 and still retains solid momentum. It has grown about 400% in the last 12 months, and while the ascent has not been straight, the overall impact is still formidable. It’s trading at around $7.8 per share, which, according to some experts, is higher than its target price of $7. However, considering the possibilities the company offers, POET Technologies may still surpass these expectations and rise to new heights.

It’s making acquisitions, completing hardware deals, and evolving as a photonics giant, not just in the region but globally as well. Various relevant stakeholders are realizing the potential of photonic chips, and if they start gaining even a fraction of the traction that Nvidia gained, the stock will keep going up.

The company might be multiple quarters away from breaking even, but it has almost no debt and a decent cash reserve to fund its operations.

Foolish takeaway

There is no doubt about the potential of photonics and that POET Technologies is ideally positioned to take advantage of this trend. The only chink in its armour is the financials, but that might not be as big of a problem if the company can win a few sizable contracts. That would allow the company access to funds from multiple sources.