There is a piece of hardware about the size of a USB stick that lives inside every major AI data center. It converts electrical signals into pulses of light and shoots them down fiber-optic cables, allowing racks of processors to behave like one giant machine. Without it, the world's most expensive AI systems are just isolated boxes sitting next to each other.
Coherent makes those components. The company broke ground today on an expanded manufacturing building in Sherman, Texas, a city of roughly 45,000 people an hour north of Dallas. The facility already runs what Coherent calls the world's first production line using 6-inch indium phosphide wafers, the specialized material at the heart of these optical components.
The expansion is being funded through a combination of sources. Coherent is receiving a $50 million federal CHIPS Act grant, on top of roughly $17 million in earlier support from Texas state programs and local economic development funds. Those are public dollars designed to rebuild domestic manufacturing in a category that drifted overseas over decades.
The private money is bigger. In March 2026, NVIDIA invested $2 billion in Coherent and signed a multiyear purchase agreement for optical networking and laser products. NVIDIA made an identical $2 billion commitment to Lumentum, a rival in the same space, on the same day. That $4 billion move into optical components was not random timing.
China placed export controls on indium phosphide, the raw material these components require, in early 2025. The effect was immediate. Prices for the key wafers jumped 250%, hitting around $5,000 per wafer. China produces around 70% of the world's indium supply, and the two largest indium phosphide substrate producers together control nearly 80% of the market. A supplier called AXT, which depends heavily on Chinese material, did not receive its first export licenses until June 2025, leaving a four-month gap that sent order backlogs stretching toward 2028.
Coherent warned publicly in May that shortages were already affecting the market. Its CEO joined a US business delegation traveling to China to seek relief. The issue has now become a topic in formal trade negotiations.
What makes Coherent's Texas position significant is the wafer size. Most global production still runs on 3- and 4-inch wafers, a legacy of the technology's age. Moving to 6-inch wafers roughly quadruples the usable surface area per run, which drives down cost and pushes up the number of components produced. Coherent's Sherman plant is the first in the world operating at that size.
The physical reason optical components matter this much comes down to copper's limits. At the speeds and distances modern AI systems require, copper wire overheats, consumes too much power, and cannot move data fast enough. Light through fiber does not have those limits. As AI systems grow larger, connecting hundreds of thousands of processors across a data center floor requires light, not wire.
For businesses watching where AI constraints will emerge next, the bottleneck is no longer just chips or electricity. It is the supply of specialized materials and the factories needed to turn them into components. New production capacity in Texas takes two to three years to reach full output. Demand is outpacing that timeline right now.
The Sherman facility, once at full capacity, is expected to support more than 550 direct jobs. That number sits alongside a broader pattern: advanced manufacturing returning to US soil after decades abroad, driven by a combination of government grants, private investment, and genuine geopolitical pressure.