Nvidia Is Investing Billions in These Two Artificial Intelligence (AI) Players. Now They're Joining the S&P 500

As one of the leading forces in artificial intelligence (AI), Nvidia (NASDAQ: NVDA) tends to attract a lot of attention. Investors scrutinize each and every move, looking for insight into the state of the industry or for ideas regarding investment opportunities. Just last week, the chipmaker announced strategic partnerships with Lumentum Holdings (NASDAQ: LITE) and Coherent (NYSE: COHR), along with plans to invest $2 billion in each of the optics technology companies.

It appears the forces that be have taken notice. Late last week, the newest additions to the S&P 500 (SNPINDEX: ^GSPC) were announced -- and Lumentum and Coherent made the grade.

Image source: Nvidia.

The big leagues

The S&P 500 is widely recognized as the most dependable benchmark of U.S. stock market performance, comprised of the 500 leading publicly traded companies in the country. To be considered for admission to the index, a company must meet the following criteria:

• Be a U.S.-based company
• Have a market cap of at least $22.7 billion
• Be highly liquid
• At least 50% of outstanding shares must be available for trading
• Be profitable on a generally accepted accounting principles (GAAP) basis in the most recent quarter
• Be profitable during the preceding four quarters in aggregate

In a press release that dropped after the market close on Friday, Lumentum and Coherent -- along with data center infrastructure provider Vertiv Holdings and pay-TV operator EchoStar -- would be joining the index before the market opens on Monday, March 23.

Admittance to the S&P 500 is a major milestone that offers a measure of credibility and prestige, helping to boost a company's reputation. Moreover, inclusion in the index forces index-tracking funds to buy shares, boosting the company's short-term stock price.

This development comes in the wake of significant partnerships with Nvidia, unveiled just last week. The chipmaker entered into a "multiyear strategic agreement" that included a "multibillion [dollar] purchase commitment," and a $2 billion investment in each.

Regarding the technology, Nvidia said, "Optical interconnect technology and package integration are critical for the continued scaling of AI factories, improving the energy efficiency and resiliency of large-scale AI networks."

Coherent and Lumentum sell optical and photonic networking components that have become crucial components in data centers. Using lasers and dedicated processors to transmit data over optical cables offers high bandwidth, low latency (or reduced lag), and greater energy efficiency. The purchase commitment helps Nvidia secure crucial data center infrastructure components.

Investors have already driven up the stock prices of both Coherent and Lumentum, which have gained 279% and 932%, respectively, over the past year. As such, their valuations have climbed, with Coherent and Lumentum trading at 34 and 45 times next year's expected earnings, respectively.

That said, a significant investment from Nvidia and admission to the S&P 500 make each of these optical component providers worth a look.

Danny Vena, CPA has positions in Nvidia. The Motley Fool has positions in and recommends Coherent, Lumentum, Nvidia, and Vertiv. The Motley Fool has a disclosure policy.