Deutsche Bank Picks AI Connectivity Stocks

Deutsche Bank analyst Gianmarco Conti initiated coverage of eight hardware stocks on September 1, 2026. He argues the next wave of artificial intelligence investment will focus on connectivity, not just computing power.

Conti, whose report was covered by MarketWatch, stated that the first wave of the AI buildout was a compute story, but the next wave is a connectivity story. He identifies companies involved in optical networking as key beneficiaries.

Analyst's Stock Ratings

Conti placed buy ratings on five companies and hold ratings on three others. Lumentum Holdings and Coherent are his highest conviction picks.

Top Picks: Lumentum and Coherent

Lumentum and Coherent manufacture optical components and lasers for data center connections. Conti calls these companies that "make and move light." He notes they are supply constrained, sold out, and raising prices.

"Every AI architecture needs their lasers," Conti wrote. He added that Nvidia has invested $2 billion in each company to support research and secure purchase commitments for their hardware.

Lumentum is described as the purest expression of Conti's investment thesis. The company wins under every architecture, he claims. Its III-V laser is the one component that every path requires.

Coherent's differentiation lies in vertical integration. The company operates from the raw-materials layer to lasers and the modules that house them. Shares of Lumentum have climbed 553% over the past year, while Coherent shares have gained 204%.

Other Key Players in the Stack

Cisco Systems is highlighted as the only large cap networker that touches all three layers of the hardware stack. It has custom silicon called Silicon One, optical components, and systems like routers and switches. Conti says this integration provides a competitive advantage.

Kevin Wollenweber, general manager of data-center and internet infrastructure at Cisco, told MarketWatch that networking is one of the biggest problems to solve in AI. He called the connectivity between components a critical bottleneck.

For Hewlett Packard Enterprise, Conti identifies networking as the earnings engine. This is due to its ownership of Juniper Networks and Aruba Networks under the HPE Networking umbrella. He expects this arm to contribute a disproportionate share of operating profits. The company's liquid-cooling technology for data centers also sets it apart.

The analyst's report frames the current market shift. The focus is moving from pure computing power to the networking hardware that connects it all.