AI Boom Fuels Photonics Investment Surge, But Europe Risks Losing the Race to China, Investor Warns
The AI boom, together with rising investment in 5G, defence quantum computing and medical technologies, is renewing investor interest in photonics. But as more capital flows into the sector, European companies face intensifying competition from Chinese manufacturers, raising concerns that Europe may struggle to turn its scientific strengths into industrial scale, an investor warns.
Since March, Nvidia has backed US photonics companies Coherent and Lumentum, among other optics and AI networking investments worth over $6 billion combined, as it seeks to replace electrical connections with faster, more efficient optical ones. Beyond data centres, 5G, quantum computing, medical technology, and defence are also fueling photonics demand, according to MarketsandMarkets.
Amid the investor rush, Defiance has launched Europe's first dedicated photonics ETF, listed on the London Stock Exchange and Borsa Italiana since 9 July.
According to Daiva Rakauskaitė, managing partner at a VC fund Aneli Capital, this is a strong catalyst for Europe’s photonics leaders to build on the region’s scientific and engineering strengths and translate them into industrial scale faster. This matters because, over the last two decades, China's share of the photonics market has tripled to more than 30%, while Europe's has fallen to 15%, according to a previous report by Photonics21, the European Technology Platform for Photonics.
Europe still produces world-class laser science; now it needs to make a decisive strategic move by investing to close the scale-up gap," Rakauskaitė says. "A European startup with a working photonics design should already be able to build it at scale, rather than having European businesses turn to Chinese competitors instead. Europe is still inventing photonics and should be a committed customer of its own technology."
The leading European companies from defence, manufacturing and other industries including Mercedes, Bosch, Volkswagen, last year issued a joint statement urging to strengthen the resilience and sustainability of Europe’s strategic photonic supply chains.
Some of these challenges were addressed in the Chips Act proposal, as Integrated photonics was listed as a key enabling technology alongside traditional electronics. Therefore, according to Rakauskaitė, further measures are needed to help businesses move from research and pilot production to commercially competitive manufacturing.
“Strengthening European photonics means backing startups all the way through, from first prototype to full-scale production, with patient capital and policy that treats them as strategic assets. It also means governments recognizing that a photonics startup succeeding at scale is a matter of economic security,” Rakauskaitė says.
One of the proofs that Europe can manufacture lasers at home is Lithuania, which marks the 60th anniversary of its laser industry this year. 90–95% of Lithuanian laser production is exported to more than 80 countries, while the sector continues to grow by more than 16% annually, according to the Lithuanian Innovation Agency.
“Lithuania shows that Europe can build globally competitive laser companies. The next challenge is ensuring that companies emerging across Europe have access to the capital and manufacturing capacity needed to achieve the same success at industrial scale,” Rakauskaitė concludes.
