Tema ETFs on Growth in Photonics & Optical Services, LITE & LAZR ETF

**SPEAKER_1** (0:00)
Welcome back to the Watchlist. It's time for our ETF Watchlist segment. Joining me right now, Hong Yi Chen, investment partner at Tema ETFs. I'm so glad that you are with us. We have a big story to talk about, and that is this is all about Photonics and using optical ways to transition this data. Tell me more about the transition that we're seeing from the days of old to maybe something more new.

**Hong Yi Chen** (0:26)
Well, thank you very much for having me on. The Tema Photonics & Optical ETF or Lazr is invested in AI optical interconnects and the investment thesis is this. AI is creating a data movement problem, not just the computing problem, as models become bigger and more powerful, many GPUs have to work together to run them, and that requires an enormous amount of data movement between chips. For decades, data centers have mostly moved information electrically over copper, but we're hitting something called the copper wall. So copper is hitting the limits of the laws of physics. The problem is that copper becomes more inefficient as you push more data through it, the signal degrades, and that's where optics comes in. So instead of moving information as an electrical signal through copper, you convert it into light and you send it through fiber optic cables.
And this is non-new technology, you probably know that, cable TV, internet, they all go through fiber, and basically light can carry much more data over longer distances with lower signal loss. So the story is that as bandwidth requirements rise, more and more copper connections become optical connections, and as you can imagine, this is making the optical TAM multiply as more connections become optical.
And that's really the investment thesis.

**SPEAKER_1** (1:54)
Yeah, understood, understood. So copper really reaching the limits. At this point, when we think about copper versus what you're talking about, electrical and optical and how we're going to be doing this, it used to be almost all copper, right? Until the transferring of the data just was too much to do, and then they have to use light to transform this data. I mean, what's going to be the spread between which is used more going forward?

**Hong Yi Chen** (2:24)
Yeah. So as I was saying before, it's really driven by copper hitting the limits of the laws of physics. So going forwards, as bandwidth requirements increase, copper is not able to serve those requirements. So you need optical connections in order to continue to increase bandwidth and the data movement that's required for the next generation of AI systems.

**SPEAKER_1** (2:54)
You're basically saying copper is out.
I didn't understand that. I've been covering this a bit, but I didn't really understand really the magnitude that copper has reached the limits, so much so that we look at photonics and the optical ETF laser. And inside that is Lumentum is Coherent, and these names have done so well when we look year to date. For example, Lumentum is up about 160 percent, year to date Coherent is up about 60 percent, and these names are within Lazr. But there are many others as well, right? Such as?

**Hong Yi Chen** (3:28)
Yeah. So we invest across the entire optical stack. So you mentioned a couple of names, Lumentum Coherent. So they make the lasers, they make the optical modules.
But we also invest in the entire supply chain, all the way from raw materials. So these lasers are made from something called Indian Phosphide. So we invest in companies that produce that, all the way to the manufacturing equipment that's used to make these lasers, all the way to the finished products that you mentioned, Lumentum and Coherent.

**SPEAKER_1** (4:02)
So I think about the total addressable market. What are we looking at going forward? Because you said now, with this and the new opportunities that come, having the capability and doing it more efficiently and faster at that, what's the total addressable market?

**Hong Yi Chen** (4:18)
Yeah, the market is potentially enormous and it's driven by two things really. The two main drivers, one, as AI CAPEX grows, you naturally need more optical connections. But the even big opportunity is, as optics penetrates new areas that were historically served by copper and replace those connections with optical connections.
So, for example, today, optical connections are concentrated mainly in longer links, whereas copper connections dominate shorter links. And as optics moves from those longer links into shorter links, you're not simply growing the existing optical market, you're addressing entirely new pool of connections. So, Goldman thinks that the optical TAM for NVIDIA, for example, could grow 15x, that's 15x from 2025 to 2028 So, you have this really powerful combination of firstly more data centers, but more importantly, the penetrating a new market of connections, which really multiplies the existing opportunity.