When engineers double a copper cable's data rate, electrical noise doubles and usable length halves—strangling the AI industry. As graphics processing units (GPUs) push toward 224 gigabits per second per lane, passive copper cables inside data centers reach less than one meter before the signal degrades.
Because the AI buildout has made copper's limits an industry emergency, optical interconnects are finally entering volume production after two decades of research. Ayar Labs, a startup from MIT and UC Berkeley, just raised $500 million in Series E funding at a $3.75 billion valuation to mass-produce chips replacing copper with light. The investment was led by asset manager Neuberger Berman and backed by NVIDIA, AMD, and MediaTek, bringing Ayar's total funding to $870 million.
Ayar Labs is not alone. Marvell agreed in December 2025 to buy the competing Celestial AI for up to $5.5 billion, and Lightmatter raised $850 million at a $4.4 billion valuation. NVIDIA itself is integrating co-packaged optics into next-generation platforms—the real battle is who dominates and how fast.
Why it matters
The cables inside AI data centers are hitting physical limits, and the companies that solve that bottleneck will shape the cost and speed of AI.
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Key Indicators
$650M
Ayar Labs 2026 primary funding
Includes a $500 million Series E in March and a $150 million extension in September
>$5B
Ayar Labs secondary valuation
Antero Peak Group at Artisan Partners led a $225 million secondary share purchase in September 2026
4-20x
Throughput-per-watt gain
Claimed improvement of optical over copper interconnects, depending on configuration and distance
~1.25 m
Copper reach at 400 Gbps/lane
Distance a traditional copper wire carries a 400-gigabit-per-second signal before it degrades; reach halves each time per-lane speed doubles
~30%
Interconnect share of data center energy
Proportion of total data center power consumed by moving data between chips, a figure optical links aim to cut in half
$115B
Marvell-Lumentum deal
All-stock acquisition announced Nov 2, 2026; expected to close in the first half of 2028
16 events
Latest: November 2nd, 2026 · 1 week ago
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November 2026
Marvell to buy Lumentum for $115 billion
LatestAcquisition
Marvell announced an all-stock deal including debt for the optical components maker, as it seeks to compete with Broadcom in AI infrastructure. The companies expect the deal to close in the first half of 2028.
September 2026
Ayar Labs extends Series E by $150 million
Funding
The extension brought primary funding raised in 2026 to $650 million. Wiwynn made a strategic investment, and Ayar opened a design center in Bengaluru.
Secondary sale values Ayar Labs above $5 billion
Funding
Antero Peak Group at Artisan Partners led a $225 million purchase from early employees and investors. Sequoia Global Equities, ARK Invest and Greycroft participated.
June 2026
Ayar Labs joins NVIDIA NVLink Fusion ecosystem
Partnership
Ayar said its co-packaged optics would be compatible with NVIDIA's optical and SerDes technologies for rack-scale AI factories.
March 2026
Ayar Labs closes $500M Series E at $3.75B valuation
Funding
Led by Neuberger Berman with investment from NVIDIA, AMD, MediaTek, Qatar Investment Authority, ARK Invest, Insight Partners, and Sequoia. Total funding reaches $870 million. Funds will scale production and expand the Hsinchu, Taiwan office.
December 2025
Marvell acquires Celestial AI for up to $5.5 billion
Acquisition
Marvell Technology bought photonic fabric startup Celestial AI, whose 16-terabit-per-second chiplet technology removes a key independent competitor from the optical interconnect market.
August 2025
Ayar Labs and Alchip demonstrate 100 Tbps optical I/O on TSMC COUPE
Technology
The companies showed a fully integrated co-packaged optical I/O subsystem on TSMC's COUPE platform, supporting more than 256 optical scale-up ports per accelerator.
April 2025
Ayar Labs launches first UCIe optical chiplet
Technology
The second-generation TeraPHY became the industry's first optical chiplet using the Universal Chiplet Interconnect Express standard, delivering 8 terabits per second and enabling interoperability across chip vendors.
March 2025
NVIDIA unveils silicon photonics networking platforms at GTC
Technology
NVIDIA announced Quantum-X InfiniBand and Spectrum-X Ethernet platforms using TSMC's COUPE co-packaged optics technology, targeting 1.6-terabit-per-second post-copper networking for AI clusters.
December 2024
Ayar Labs raises $155M Series D, crosses $1B valuation
Funding
Led by Advent Global Opportunities and Light Street Capital, with investment from AMD, Intel Capital, and NVIDIA. Total funding reached $370 million.
October 2024
Lightmatter raises $400M Series D at $4.4B valuation
Funding
Led by T. Rowe Price, the round brought Lightmatter's total funding to roughly $850 million, making it the highest-valued independent photonics startup at the time.
June 2021
First terabit optical link demonstrated
Technology
Ayar Labs demonstrated a fully functional TeraPHY chiplet running error-free at 1.024 terabits per second with less than 5 picojoules per bit of energy, in partnership with MACOM.
November 2020
Ayar Labs closes $35M Series B
Funding
The round funded development of the TeraPHY optical engine on GlobalFoundries' silicon photonics manufacturing process.
December 2015
MIT/Berkeley team publishes light-enabled microprocessor in Nature
Research
A DARPA-funded collaboration between MIT, UC Berkeley, and the University of Colorado Boulder demonstrated a 3-by-6 millimeter chip combining 70 million transistors with 850 photonic components. The result became the foundation for Ayar Labs.
Ayar Labs founded
Corporate
Mark Wade, Alex Wright-Gladstein, Vladimir Stojanovic, and Chen Sun incorporated Ayar Labs after their MIT photonic chip won a clean energy competition. Prize money helped launch the company.
February 2004
Intel demonstrates first fast silicon optical modulator
Research
Intel researcher Mario Paniccia published results in the journal Nature showing a silicon modulator converting laser light into digital pulses at one gigahertz, proving silicon photonics was feasible.
Scenarios
1
Optical startups become essential AI suppliers, Ayar Labs heads toward IPO
Likely
Discussed by: ARK Invest, Sequoia Capital, SemiAnalysis, and venture investors who view optical interconnects as a structural shift comparable to the rise of GPUs for AI
If AI cluster sizes continue doubling and copper's distance limits make optical the only viable scale-up interconnect, Ayar Labs and Lightmatter could become critical suppliers embedded in the GPU ecosystem. Ayar Labs' projection of 100 million annual unit shipments by 2028 would support a multi-billion-dollar revenue run rate, making an IPO the likely next step. This scenario depends on volume manufacturing yields being high enough to meet hyperscaler procurement standards and on Ayar Labs maintaining its technology lead as chip giants invest in competing approaches.
2
NVIDIA, Broadcom, and Marvell develop in-house optical, squeezing startups
Possible
Discussed by: LightCounting, EE Times, and semiconductor analysts who note that NVIDIA's COUPE-based platforms and Marvell's Celestial AI acquisition give incumbents viable in-house alternatives
NVIDIA is building co-packaged optics into its Quantum-X and Spectrum-X networking platforms using TSMC's manufacturing process. Marvell owns Celestial AI and announced a $115 billion deal for Lumentum. If these incumbents move faster than expected, independent startups like Ayar Labs could find their addressable market shrinking to niche applications. The risk is highest in scale-out networking, where incumbents already have strong customer relationships.
3
Copper innovations and alternative approaches delay optical adoption
Possible
Discussed by: Intel, Point2, and engineers who argue that linear-drive pluggable optics (LPO), active copper cables, and radio-based interconnects can extend copper's runway by several years
The semiconductor industry has repeatedly extended copper beyond its predicted limits. Active copper cables, advanced signal processing, and radio-based startups like Point2 offer intermediate solutions that could slow the transition to co-packaged optics. If AI cluster growth decelerates or if copper workarounds prove cheaper at scale, the optical interconnect market could take longer to materialize than current projections suggest, stranding companies that scaled production prematurely.
4
Ayar Labs acquired by a chip giant before reaching independent scale
Possible
Discussed by: CNBC, The Next Platform, and M&A analysts who cite Marvell's $5.5 billion Celestial AI deal as establishing a valuation benchmark for optical interconnect acquisitions
Marvell's acquisition of Celestial AI set a clear precedent: established semiconductor companies will pay billions to secure optical interconnect capability. NVIDIA, AMD, Intel, or Broadcom could acquire Ayar Labs to lock in supply and prevent competitors from doing the same. With Ayar Labs now valued at $3.75 billion and backed by both NVIDIA and AMD, any acquisition would involve complex strategic dynamics between rival investors.
Historical Context
3 moments from history that rhyme with this story — and how they unfolded.
1 of 3
1980-2000
Fiber optics replaces copper in telecommunications (1980s-2000s)
Telephone companies and internet backbone operators spent two decades replacing copper trunk lines with fiber-optic cables. Corning Glass Works (now Corning Incorporated) developed low-loss optical fiber in 1970, but it took until the late 1990s dot-com boom for massive capital investment to lay fiber across continents. Companies like Global Crossing and WorldCom spent billions on fiber networks.
Then
The transition created enormous wealth for fiber manufacturers and installers, but also fueled overbuilding that contributed to the dot-com bust when demand didn't immediately match supply.
Now
Fiber became the unquestioned backbone of global communications. The excess capacity laid in the 1990s eventually proved essential as internet traffic grew exponentially. Copper persists only for short last-mile connections.
Why this matters now
The current copper-to-optical transition inside data centers mirrors the telecom shift but at chip-level distances. The same physics—light carries more data, farther, with less energy than electricity in copper—drives both transitions. The overbuilding risk also rhymes: optical startups raising billions before volume revenue materializes.
2 of 3
2004-2024
Intel's silicon photonics program (2004-2024)
In 2004, Intel researcher Mario Paniccia demonstrated that silicon could modulate light at gigahertz speeds, publishing the results in Nature. Intel invested heavily in silicon photonics for over two decades, building transceivers for data center networking. In 2006, Intel Senior Vice President Pat Gelsinger predicted optics would become "the mainstream of every chip that we build."
Then
Intel proved the technology worked in the lab and shipped pluggable optical transceivers, but the products remained a niche business within Intel's portfolio for nearly 20 years.
Now
Intel eventually spun off its silicon photonics assets. The technology proved viable but struggled commercially until AI training created data movement demands that copper could not serve. The lesson: demonstrating feasibility is different from achieving mass adoption, and adoption requires an external forcing function.
Why this matters now
Ayar Labs' core technology descends from the same field Intel pioneered. The difference is timing: AI infrastructure spending now provides the demand signal that Intel lacked for two decades. Whether Ayar Labs captures the moment or repeats Intel's slow commercialization arc depends on whether production can scale as fast as orders arrive.
3 of 3
1990-2000
Qualcomm's rise as a wireless infrastructure supplier (1990s)
Qualcomm developed Code Division Multiple Access (CDMA) technology for wireless communications and licensed it to the telecommunications industry. Major carriers initially resisted switching from existing standards. Qualcomm's founders, Irwin Jacobs and Andrew Viterbi, raised successive rounds of venture funding and went public in 1991 at a $486 million valuation, then fought a multi-year standards battle to establish CDMA as the basis for 3G mobile networks.
Then
Qualcomm faced skepticism from European carriers favoring the competing GSM standard and was forced to divest its phone manufacturing business to focus on chips and licensing.
Now
CDMA became the foundation of 3G and later 4G/5G wireless standards. Qualcomm grew into a $180 billion company by owning the foundational technology that every smartphone requires.
Why this matters now
Ayar Labs occupies a similar structural position: a company with a potentially foundational technology trying to become an essential supplier to an industry undergoing a major infrastructure transition. The parallel highlights both the upside if optical I/O becomes standard and the risk that competing approaches or vertically integrated incumbents could limit the opportunity.
