18 stocks to play a booming under-the-radar theme in data centers, according to a CIO

• Photonics, using light particles, is poised to revolutionize AI data centers for efficiency.
• That's according to Ben McMillan, who says the theme is a major investment opportunity.
• The CIO of IDX Advisors recently published a list of 18 photonics stocks to watch.

By now, you know data centers are big business, and about all of the energy, components, and cooling systems needed to fuel it are part of that thriving ecosystem. But one investment chief says the next data-center-driven trade will focus on a less well-known technology: photonics.

Photonics is the use of light particles, or photons, to transmit and store data. Current systems, by contrast, rely on electrons to do those things. But photonic technology will make AI data centers more efficient, according to Ben McMillan, the chief investment officer at IDX Advisors, who says it will be the next hot trade in the data-center space — if it isn't already.

"The fundamental physics advantage is stark and directly relevant to capital allocation decisions," McMillan wrote in a recent report. "Photons travel at the speed of light, carry no electrical charge, generate virtually no heat from resistance," he added.

In an interview with Business Insider this week, McMillan characterized the technology a bit more colloquially: "Basically think of it as like fiber optics on steroids."

Seeking to capitalize on the emerging trend, McMillan compiled a list of 18 stocks exposed to the theme, categorizing them as near-term, medium-term, or long-term opportunities — meaning gains should be realized in 1-3, 3-5, and 5-10-year time horizons.

McMillan sorted them into seven different tiers of exposure:

• 1) Pure-play photonics, where most of the firm's revenue comes from the technology
• 2) Large-cap semiconductor companies that have a photonics division
• 3) Semiconductor component suppliers
• 4) Foundries and manufacturing firms that can produce photonics chips
• 5) Firms that produce network infrastructure for data centers
• 6) Small-cap names in the space that are speculative bets
• 7) Large-cap companies that fall in the general photonic ecosystem

Stocks on McMillan's list have boomed over the last 12 months, gaining an average of around 486%, but he says the trend is still in its early stages.

"It's still a very early emerging narrative," McMillan said, adding: "There's no ETF that follows it. It's not really in the zeitgeist yet."

Below are the 18 stocks on the list, along with their focus, time-horizon, and tier of exposure to the photonics theme.