The big AI trade you’re probably missing

Today’s issue in preview:

• The big AI trade you’re probably missing

• The upcoming SpaceX IPO is driving the space industry higher. Stocks for playing the boom.

• A bullish move for biotechnology stocks

• The AI infrastructure trade is generating wealth and winners. Are you long?

The big AI trade you’re probably missing

Credit: Petrovich9

It’s official. The bull market in optical networking stocks is back on.

On Thursday, April 2, leading optical networking firms Lumentum (LITE) and Ciena (CIEN) broke out to new all-time highs.

Over the past few weeks, we have frequently highlighted the strength in optical networking stocks such as Lumentum, Cienna, and Coherent (COHR). Optical networking equipment is a critical ingredient of the AI infrastructure boom. It allows data to be transferred quickly and efficiently between parts of AI computing chains. Think of optical networking as a critical part of the “AI data traffic highway system.”

Since reaching an all-time high in January, the benchmark S&P 500 index is down about 5%. This Epic-Fury-induced weakness has led to far fewer industries reaching new all-time highs than we see in “less chaotic” geopolitical and business environments. But in a bullish development, optical networking is one such industry where stocks are either trading near their all-time highs or setting them. When an industry reaches new highs during a period of broad market weakness, it’s a sign the fundamental drivers of that industry are extraordinarily strong.

As for optical networking’s fundamentals, we can summarize them by saying optical networking is on the receiving end of the largest investment boom in all recorded history.

Given AI’s enormous promise, large tech firms such as Google, Amazon, Meta, and OpenAI are spending hundreds of billions of dollars per year on data centers, AI chips, and other infrastructure components. Their total investment in this space will exceed $600 billion this year and reach trillions more over the next five years.

As a result of Big Tech’s enormous AI infrastructure spending, optical network equipment makers Lumentum, Coherent, and Ciena have enjoyed soaring revenues, and their stocks have returned hundreds of percent over the past 18 months. However, the industry suffered a selloff due to Epic Fury.

As you can see in the Lumentum chart below, the Epic Fury selloff was short-lived. On April 2, the stock climbed 8.1% to reach a new all-time high. Cienna reached an all-time high as well.

In other words, the big bull market in optical networking is back on. It’s good to be on the receiving end of the largest capex program in all recorded history.

The upcoming SpaceX IPO is driving the space industry higher. Stocks for playing the boom.

Credit: peepo

Optical networking wasn’t the only industry that registered a major upside breakout and new all-time highs last week. The space industry did as well.

Last week, as most themes and industries traded well off their 2026 highs, the space industry-focused Procure Space ETF (UFO) broke out to all-time highs. The surge is particularly impressive in a weak overall market.

Regular readers know space is one of our top megatrend “picks to click” for the next decade. Innovations in satellite and rocket technology have made space an incredible “platform” for deploying communications and surveillance equipment.

Last September, we put a spotlight on the upside breakout in space stocks and said it’s a sector the “public could go wild for.”

At the time, we stated:

When people think of investing in space, they often go towards the business of launching rockets and Elon Musk’s SpaceX. But many of the most promising “space stocks” are in the business of space-based communication platforms and equipment. Think government surveillance, military communication, GPS, internet service, and cell service.

The best big picture fundamental case for space stocks right now is that the Trump administration believes America in a hugely important competition with China and other countries for “space dominance.” This means regulatory and financial support for the U.S. space industry.

Since that note, space-related stocks have soared. Rocket launch firm Rocket Lab (RKLB) is up 41%. Satellite operator AST SpaceMobile (ASTS) is up 105%. Satellite operator Planet Labs (PL) is up 223%.

This strong investment theme could get even stronger thanks to the massive interest in SpaceX’s upcoming IPO, which is expected soon. The filing could happen any day now. There’s speculation that SpaceX could seek a valuation of more than $1.5 trillion.

This IPO would rank among the biggest and most “PR generating” transactions in Wall Street history. It would also inject a lot of money and investor interest into the space industry. That’s what the market sees, as shown by UFO reaching a new all-time high, along with individual space industry players Intuitive Machines (LUNR), Satellogic (SATL), and Globalstar (GSAT). The bull market in space is getting a SpaceX-sized shot in the arm.

A bullish move for biotechnology stocks

Credit: Oselote

While we’re talking about industries and themes doing well in a weak overall market, we must also mention the biotechnology industry. It’s another sector that is passing the Epic Fury-induced “stress test” with an excellent grade.

Regular readers know that the biotechnology industry is one of my highest-conviction long-term investment themes.

On August 18, I sent a research note to colleagues outlining my bullish view of the sector’s price action. Since then, I’ve written more than a dozen updates on the biotech bull market. During this time, the sector has outpaced the S&P by an incredible 43.6% to 2.3%.

The biotechnology sector is full of companies working on cures and treatments for hundreds of diseases. When investors grow interested in this industry, the returns can be incredible. During the last biotech bull market, the sector soared 300% over four years.

Since biotech has performed poorly since 2021, most investors are indifferent to it. But I see major potential here. This industry could start regularly generating stock market doubles and triples.

The fusion of AI plus biology will generate dozens of compelling stock narratives over the coming years. Researchers running super-intelligent AI programs will be able to run millions of digital simulations for drugs and treatments. This will accelerate the pace of medical innovation and create many big stock market winners.

Companies that leverage AI to “crack the code” for various diseases, treatments and drugs will enjoy 100%… 500%… even 1,000%+ stock rallies.

In many cases, these rallies will happen thanks to stories and potential… rather than a company generating revenue or earnings. Capitalizing on many of today’s biggest stock market trends means focusing on promise over profits. The biotech sector holds the potential for both.

Over the past two months, the benchmark S&P 500 index is down 2.7%. However, the SPDR S&P Biotech ETF (XBI) is up 7.6% during the same time. It’s very impressive strength in a weak market.

During periods of market weakness, I look for which stocks, ETFs, and themes are holding steady or advancing. It’s a “stress test.”

If the market drops 3%, you want to see what drops just 1%. If the market drops 2%, you want to see what climbs 1%. That sort of thing. This is often called “relative strength.” It allows you to spot the safer megatrends for investment.

It’s like looking at a beachfront neighborhood after a hurricane. Some homes lost their roofs, and some homes were blown away. But some homes were unbothered by the storm. Those are the strongest homes.

The biotech sector’s strong relative strength indicates the fundamental forces behind it are powerful. It’s yet another bullish development in the biotech bull market.

Market Notes

• Computer memory leader Seagate (STX) – which benefits from AI infrastructure spending – reached a new all-time high today.

• Aluminum maker Alcoa (AA) reached a new one-year high today.

• Satellite firm IridiumCommunications (IRDM) reached a new one-year high today.

• Home flooring giant Mohawk Industries (MHK) reached a new one-year low today due to a weak housing market.

• Semiconductor firms Marvell (MRVL), Tower Semiconductor (TSEM), and STMicroelectronics (STM) reached new one-year highs today. Each firm benefits from booming AI infrastructure spending.

Regards,

Brian Hunt
Editor, Money & Megatrends

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