Alex Hantman, and I serve as an Equity Research Analyst here at Sidoti & Company. Today, I'm pleased to be in conversation with CEO Yves LeMaitre of Lightwave Logic, ticker LWLG. During the presentation, please feel welcome to submit questions using the Zoom Q&A interface at the bottom of your screen. After the presentation, we'll open to your questions. Yves, I'll turn it over to you.
Thanks, Alex, and thanks to all of you who are listening to this presentation about Lightwave Logic. Short introduction about the company: we are essentially an AI hardware play, and I'm going to cover that in more detail during our presentation. The company has invented, designed, and is producing a very unique type of material called Electro-Optic polymers, which has some very unique properties that help AI data centers and AI factories scale up to basically deliver more connectivity and more bandwidth between all the different elements of the AI factories. We are driven by the AI market, which is a TAM in excess of $20 billion today and going to closer to $30 billion by 2028.
Our material is very unique, and I'll explain the properties a little bit later, but it's also covered by a broad IP portfolio of patents and trade secrets that make us very unique in the industry. We have a deeply experienced leadership team, and our financial position is solid. Although we are still pre-revenue, we have a strong balance sheet, no debt, and multiple financial elements that allow us to continue to grow over the next couple of years until we've built a scalable business. Our business model is a combination of material sales, this unique material I was talking about, these polymers, which are special molecules made up of a series of repeating elements. These polymers, we master, of course, their composition. We master the structure of the atoms and how they are connected and bonded together to create this very unique Electro-Optic polymer material.
We sell the materials, but we also help our customers integrate this material into their electronics chips. They are called Silicon Photonics chips, and they integrate the polymer to deliver certain unique functions I am going to go into next. We supply them with what is called the Process Design Kit and the licensing to our materials. We get a revenue stream composed of materials and licensing or royalty fees, which enables us to have a target business model that will generate gross margin in excess of 60% at scale. What are we doing in those data centers or these AI factories? This is a picture of a typical NVIDIA AI factory where you see racks and racks of equipment and rows and rows of racks. Those AI factories can reach the size of a football field. You have definitely hundreds and hundreds of racks in those.
All of those consist pretty much of a combination of super high-speed processors, memory banks, and a way to interconnect them. In order to interconnect them, one of the key challenges is to be able to connect them using fiber optics so you can get sufficient speed, sufficient bandwidth, sufficient level of information being transmitted between all of these processors. What the AI world has created is a significant challenge that, unlike the internet, where most of your traffic goes in and out of the data center fairly quickly, here, all of these processors are interconnected to each other. You're talking tens of thousands, if not hundreds of thousands of processors or GPUs that are connected here within one AI factory. When that happens, you suddenly need to have up to 10x more connection than you would have in a typical data center.
Each of these connections needs to operate at the highest possible bandwidth or speed. What we do at Lightwave Logic is we have this Electro-Optic polymer that we use as we call it a modulator. The modulator is essentially a little flashlight that turns on and off the light so you can transmit information over fiber optics. In our case, we can scale the speed and the amount of information transmitted over a fiber pair to a bandwidth that is equivalent to turning on and off the lights 100 billion times per second, 100 billion times per second, and beyond. This is one of the key challenges that the data centers have. They need to interconnect all these processors at the highest possible speed. In order to do that, they need to have access to the fastest modulators.
All the traditional technologies are running out of steam. We are one with our unique material properties that are able to deliver that bandwidth requirement. We also deliver the connectivity requirement where all of those can be interconnected. We also are saving what is today one of the significant challenges for AI factories, which is we are operating at much lower power than many of our other solutions. You have to realize that some of these data centers or AI factories are now consuming hundreds of megawatts of energy. Any saving you can bring to this architecture while allowing it to continue to scale up and scale out is really very critical. We can do that because our material has these unique properties. Finally, our material can be easily integrated with the rest of the infrastructure. It can be integrated into silicon. You can use our polymer.
You embed it into a silicon chip, and then it fits right into this architecture that you see here on the screen. There are multiple ways to interconnect those GPU clusters. These are examples based on public information from NVIDIA about how they are architecting their systems. There are multiple flavors of it. Ultimately, it is all about transmitting the data at the fastest speed. Our technology enables these GPUs or XPUs or super fast processors that are really like the neurons in your brain. They need to be interconnected to create like a supercomputer. When you do that, you do it, of course, locally on the rack itself, where you have all these processors stacked up, but more importantly, between racks and between rows and rows of racks.
You really need to have so many optical connections that can span from just a few meters to several miles of fibers. When you do that, you need to have a technology that can scale both in terms of distance, in terms of bandwidth. That's what we do. There are multiple flavors of this that are being deployed by NVIDIA and all of the other kind of major AI players like Google, Meta, and others. One of the challenges that the industry has had is, as those speeds keep going up, you constantly have to refresh the speed of the modulator.
When the speed gets to what is called here 3.2 Tb ps , where you have multiple lanes of your transceivers, when that speed reaches 400 Gbps , no other technology is available to really deliver the bandwidth that is required to meet the requirements of the AI factories. It is a very large market. The market that you see here on the left-hand side for this type of optical transceivers, all the little devices that interconnect on the fiber, is in excess of $25 billion, will be in excess of $25 billion by the year 2028. You are talking about, for the top one, which is the fastest speed of transmission that exists in the world, you are talking about 20 million units of super high-speed transceivers operating at 1.6 or 3.2 Tbps .
Each of these transceivers would have eight little modulators inside that we would use our materials. You're talking about a potential market of 160 million modulators. That's just for the AI infrastructure. You still have the rest of the fiber optical communication market for the data center, for the telecom infrastructure. In total, you're approaching $25 billion of total addressable market, which for us, for the modulator portion of that, would represent somewhere between $1 billion and $2.5 billion of a serviceable market. For us, really, you can imagine that if we are able to get a significant share of that market with our modulator, in particular, as the market is desperate for a solution that can scale to 400 Gbps per lane, we can create a fairly sizable business.
There are other markets for our technologies beyond optical communication and AI, but obviously, it's a core focus of the company right now. We are going in a market that is growing at a very high CAGR of in excess of 50% the last couple of years. It's a core focus of the company. I also want you to understand that beyond that market, our materials also have applications in quantum computing, aerospace and defense, consumer electronics. Obviously, as we are building the company, we are still pre to early revenue today. We want to make sure that we focus on kind of the opportunity right in front of us. Critical milestones for us is our customer traction. We are targeting multiple major design wins by 2028 with what we call transceiver or Silicon Photonics design houses.
Those are the people that use and integrate all polymers into their chips. We are targeting a majority market share for this 400 transition to 400 Gb ps per lane, and of course, having a technology that will continue to evolve to meet the customer needs. Just to give you an update on how these ecosystems work, and so you can put some names attached to it, ultimately, the end users of this technology are the hyperscalers and AI data center companies. NVIDIA, AWS, Google, Microsoft, and Meta are good names to kind of understand who those companies are. Typically, those companies are going to use optical transceivers, which are, again, devices that allow transmission over fiber optics.
They get these optical transceivers for companies like NVIDIA, Coherent, InnoLight, a whole bunch here listed on this slide, either in Asia and some of them based here in North America. Those little optical transceivers, inside of them, you will find a Silicon Photonics engine, which is really the engine that transmits and receives the light on this optical fiber. There are more companies that either develop the chip or are enabling the fabrication of the chips through their semiconductor foundries. Finally, inside those chips, that is where you will find our Lightwave Logic materials, these little tiny modulators that will be embedded on the chip. That is essentially where we fit into the ecosystem, a very critical enabler for the migration to higher speed and scaling the AI factories. The company has been in existence for a long time.
It's very difficult and very challenging to bring new materials like this Electro-Optic polymer to market. Over the last more than 10 years, we have worked on the technology and the materials development, as well as building the production capabilities to bring this product to market. One of the key challenges was not just to reach the performance that I talked about, but also to demonstrate that our products will be robust and reliable and stable enough that they could actually be used for many years inside the AI products and inside the data center. Demonstrating the stability and the robustness and the reliability of the technology was really kind of a key point. It took quite a while for the company to get there. We believe we are there.
That's why we're entering the stage two of the company now, where we are targeting these key customers and products. We call that design ins, the process of winning a customer and getting our product selected so that we can benefit from the full integration into the AI ecosystem. At the same time, we are scaling up our infrastructure so that we are ready to go into full production that we highlighted in our presentation to investors in the past around the second half of 2027 and 2028. We are also planning for penetrating new markets and new applications. The way our products are being integrated and selected by key customers is really important for us to describe because our investors are measuring our progress based on the traction we are getting with these customers.
We go through a very rigorous process before we can claim victory on what we call the design win. The first stage is to really get our technology selected, which means that people have to believe that we have superior performance, that our materials are reliable, and we also have other advantages versus competing technology, size, power, cost, and so on. We move to a product design where we not only supply our material to our customers, but we help them understand how to use it and how to integrate it into their chip. We go through the actual prototyping up to the final product, and finally, we get into production and high volume. This cycle typically takes 18-24 months beginning to end, from the first time we engage a customer to the time we start getting volume revenue.
Currently, we have one customer who's already reached what we call stage three, which is really getting to the prototype and planning for the final product. We have 10 customers who are engaged in the technology selection and product design, and we have more than 20 customers in the pipeline that we are hoping to bring into this cycle. We are targeting three to five customers by the end in stage three or prototype to final product stage by the end of 2025 and targeting volume ramp in second half 2027 and 2028. We are very pleased with our go-to-market strategy. It took us a while to get here, but the traction is fantastic due to the need of scaling up the AI infrastructure. I think I'll just cover quickly this. This is kind of a very technical slide.
I apologize for this, but I think it's important you understand how people are looking at our polymers versus competition, and this is why we have a solution that nobody else can match in the market. We are addressing on the top side of the slide the key elements that are required for these little modulators, these little flashlights. One, the performance to go faster than anything else. That's what we call the R33 coefficient. It's essentially the ability to turn on and off the light very, very quickly. The refractive index also is very important. The more refractive you are, the easier and the cleaner the transition will be on your signal from zero to one. Finally, your absorbance, which is really how much of the light will go through your material.
You want your material to be as transparent as possible when you're trying to transmit and as dark and as absorbing as possible when you're not. Those are the three things where really we outperform any other competition. We have very little competition in the polymer space because we are one of the companies who invested in excess of $100 million to get here. We are far ahead of anybody else. Our competition is more alternative technologies. The second part of this chart here is to demonstrate that we have achieved the level of reliability and stability that the material is required. We are talking about the ability to operate at high temperature, the ability to operate in difficult environments.
We do that by protecting our material with special layers, kind of our trade secret special layer to protect the material so it can last for essentially 10 years or more. For the sake of time, I'll probably skip this. We have this very unique manufacturing process that allows us to embed our material into silicon. If you go to the silicon foundries that are being used today, companies like TSMC or GlobalFoundries, they can easily adopt our materials and integrate it. That's kind of something that makes us very different from any other technologies kind of in the world. We have the capability not only to deliver these prototypes, but to really ramp in volume. We have set up a very advanced material production facility in Denver, where we are based.
Most of the company is based in Denver, as well as all the other tools that our customers require to be able to process the materials, to qualify the material, and have the right technical expertise to support them. With that, I probably will open it up for questions and answers now. Thank you very much.
Thank you, Yves, for sharing the story with us. I'll remind folks, if they have questions, they can submit them using the Zoom Q&A interface at the bottom of the screen. Maybe we could just start off. You've clearly done a lot of work over the last decade to technically validate the technology. Can we talk a little bit about this gap between where you are now and prototyping and commercialization? Can you tell us more about that process and when we might expect the first revenues and kind of how quickly then that might develop over 2025 and 2026?
Yes, thanks, Alex. That's a good question. Question I get a lot, actually. I think there's two aspects to it. One is when you bring this industry has been fairly conservative, obviously, just because of the scale of it and the need for that bandwidth. Whether it was data center or internet before and now AI, customers were and are always concerned about bringing something completely new material like ours into their solution. One, we had to really spend a lot of time convincing them that the technology was stable and reliable. The good news now is there's no other alternatives. We are able to really get more commercial traction now because everybody's looking for solutions.
Our customers are willing to take more risks than they might have in the past. That's one important thing that is really creating so much traction on the customer side. The second is, of course, the time it takes from the first time you talk to your customers about your great materials to the time you're actually in production, as I said, is about two years. We really started at the beginning of 2025, this process, 18 months to two years. That's really what we are pushing now through these design wins with our customers to show the progress we are making in getting these customers to move along the design win process to the point where they will be in full production.
Again, as I mentioned, we are talking about an 18-24 months process, and we believe we can have three to five customers at that stage by the end of the year.
Perfect. Thank you for sharing. In terms of the competitive landscape, you had a nice slide about lithium modulators, and you talked about comparison to Silicon Photonics. Could you talk a little bit about pricing? Is it higher upfront, but from these benefits, it is an ROI down the line? How does that sort of fit into the market value?
Okay, good question. Two topics. First, where are we against competition? Today, there are, again, these challenges of scaling up the speed, these little flashlight modulators I was talking about. That is not a new problem. It is a problem that the industry has faced for the last 20 years or more.
There is a number of materials that are available to do that. Unfortunately, none of these materials, maybe fortunately for us, none of these materials have the roadmap to reach kind of that next level of speed of bandwidth that is required. Whether you are talking about what is called lithium niobate or indium phosphide or even silicon modulators, they are all reaching their limits. It is a really big challenge for the industry. As the electronics continues to accelerate, the photons and the speed of transmitting over fiber needs to match that, and there is no solution today. The way the market works is in terms of pricing, the market works, again, that is why we size the market based on these optical transceivers that are typically the two little elements that transmit on one side, electronics, on the other side, optics. They make the transition between electrons and photons.
Each of these elements typically sold, and it's been kind of a rule of thumb, but between 50 cents to a dollar per gigabit. When you're talking about the latest devices, they are essentially Jensen Huang from NVIDIA was talking about the old days. The latest kind of is about $1,000 for a little transceiver. Of course, if you go lower speed, it's cheaper. If you go higher speed, it's more expensive. That little transceiver, if you aggregate the whole market, as I mentioned, it's like to think about it as a $20 billion-$30 billion kind of tan. We are a portion of that. We are a percentage of that. The modulator is one of the pieces that builds inside the transceivers. There's other pieces. You have some other electronics. You have a laser.
You might have, you're going to have a receiver, and you have this modulator. That is where we have said from out of that $20 billion-$30 billion market or some in 2028, the part that will represent the modulator is going to be somewhere between $1 billion and $2.5 billion. Of course, as you go into production in our model, we want to be part of that success. We want to benefit from the scaling from multiple fronts.
Number one, because then we tie to our customers when they sell a lot of these transceivers, they sell a lot of modulators, and we get the royalties to flow back to us, which also enables us to have a business model where instead of selling bulk materials and then move on to the next customer, we have this recurring set of revenue and high margin royalties coming back to us to reflect our effort and our success.
Makes sense. Thank you for clarifying. Let's shift gears a little bit. Maybe we could connect the dots. So we've talked about the technology and the competitive positioning and where we are now. Let's talk about the capitalization. How equipped are you to finance the timeline slide that you showed? And do you anticipate any sorts of additional capital in the next 18 months?
I mean, the beauty of where we are now is it took a long time, and we spent in excess of $100 million to get to where we are. But because of that, we have built a production facility. We have built prototypes. We have built pretty much everything we need at this point in time in terms of our OpEx and CapEx to enable this transition to these materials as it's getting adopted by AI. So our OpEx and CapEx growth plans are fairly modest over the next couple of years. The company has been burning in the range of $20 million last year and this year, expected to be about the same. So we have adequate financing, and we also have, obviously, a shelf of $100 million with two financial instruments in place. So really, our need for financing is limited.
Of course, we'll continue to scale our engineering and customer support functions, and probably we'll continue to improve on our material production. I mean, really, the bulk of the spend has been achieved. I think the question for us now is how quickly can we get to revenue and the quality of earnings of our revenue. I mean, again, that's why we picked this model of materials and licensing because we believe that will translate into high-quality gross margin, semiconductor-type margins for our business.
That makes sense. I think you've definitely shown closer and closer progress to commerciality. The stock price seems to be lagging some of those milestones you've hit. What do you think the street is underappreciating at this point?
I think it's due to the long history of the company. The expectation about these materials has been there for a long time.
There were other companies who tried it before us. Honestly, it took us a long time at Lightwave Logic to get to the level of finally being ready for commercialization. That is why we made a change at the end of last year. I think there have been investors who have been losing confidence in the story. I think that is why I decided to open up a little bit more on where we are in terms of customer traction and kind of reset expectations as well about the timelines. I think we are seeing that inflection point. I believe that there is a kind of a new set of investors who believe the story. Of course, we are also a bit lucky in the sense that the AI infrastructure scaling kind of is forcing people to take more risks than they would.
We believe that the window for adopting our materials is right there and that people are willing to take chances because, again, there is no good alternative to do this and bring the speed up to 400 Gbps .
I think that's a great segue. We're almost out of time. As the last parting words, maybe you could sum up the value proposition for investors who are looking across photonics and thin film and Electro-Optic polymers or even more broadly at digital infrastructure opportunities.
Yeah, I think it's pretty rare that you have an opportunity for new materials to really be introduced into the industry. It doesn't happen often. Here, we have kind of this convergence of having a new material that nobody else has in the industry. Nobody's close to where we are.
That's happening at the same time that you have a significant industry problem to solve with a huge amount of money and investment trying to solve it, which is really the scaling of the AI factories. We have the convergence of the two. We are really in the right spot at the right time. At the same time, we have to address the credibility of the companies and the past expectations. That's why I'm trying to be as transparent as possible about customer traction and where we are on the progress of the company. It is very rare that you have this convergence of a new material unique, kind of disruptive to the industry coming at a time where there's a real significant challenge that cannot be solved without that material. We believe we are that.
It is a very exciting time. We are out of time for today's session, but I'd like to thank you very much for sharing the Lightwave Logic story with us. I'd also like to thank everybody listening for spending time with us today.
Yeah, thank you very much. You have on the slide here, you have our contacts at Alpha IR who's representing us. Thank you very much. Again, thanks for listening to our story.