The artificial intelligence boom is no longer just lifting global technology giants. In India, it is turning optical fibre makers into stock market stars.
Shares of HFCL and Sterlite Technologies Limited have emerged as some of the biggest multibaggers of 2026, riding on explosive demand for AI-linked data centre infrastructure. While Sterlite Tech has surged nearly 375% so far this year, HFCL has rallied about 135% during the same period.
At the heart of the rally is one powerful theme: the world’s AI expansion needs enormous amounts of high-speed connectivity infrastructure, and optical fibre is becoming the backbone of that ecosystem.
India’s data centre opportunity is only adding fuel to the momentum. According to a KPMG report, India’s total data centre sector revenue is projected to reach nearly $45.69 billion by 2033, driven by rising AI workloads, rapid cloud adoption and data localisation requirements. “With one billion internet users and businesses rapidly adopting cloud services, building domestic data centres is now a necessity,” the report noted.
Globally too, hyperscalers are accelerating investments in AI-focused data centres, creating massive demand for optical fibre cables, interconnect solutions and telecom infrastructure. As AI workloads become larger and more compute-intensive, data centres require significantly higher internal and inter-data centre connectivity, directly benefiting companies like HFCL and Sterlite Technologies.
So after such a meteoric rally, which stock looks better placed now?
Experts tracking the sector believe the sharp move in both counters is backed by genuine structural tailwinds, including the global AI-driven fibre buildout, BharatNet-related telecom capex and rising hyperscaler demand for high-density optical connectivity.
For HFCL, the March quarter marked a significant turnaround. Revenue nearly doubled YoY to Rs 1,824 crore, EBITDA swung from negative territory to Rs 315 crore and PAT moved from a loss of Rs 83 crore to a profit of Rs 184 crore within a year.
“The structural shift is real; product revenue has grown from 27% of the mix in FY21 to 59% in FY26, and exports now account for 41% of revenue. That's a business fundamentally changing its character,” said Balaji Rao.
Beyond optical fibre cables, HFCL is also expanding aggressively into defence and aerospace through the Defsys acquisition. The company is setting up a Rs 1,000-acre ammunition complex in Andhra Pradesh and scaling up its data centre interconnect solutions business, targeting revenue of Rs 400 crore in FY27 and Rs 800 crore in FY28. Its optical fibre cable capacity is set to expand by 25% by December 2026, while backward integration into preforms is expected to reduce raw material costs by 15-20%.
Even after the sharp rally, analysts believe the long-term structural story remains intact, although valuations are becoming increasingly difficult to ignore. HFCL’s trailing P/E is above 70x. While that appears relatively more comfortable compared with Sterlite Tech, it still remains significantly above historical averages.
“While valuations look stretched, with STL trading at relatively higher valuations, there are still some structural gains for the next 3-5 years, provided a healthy correction comes first,” said Ravi Singh.
“From a risk-reward perspective, HFCL is preferable after the rally due to better diversification, relatively lower valuation stretch, and strong order visibility,” added Santosh Meena.
Sterlite’s 375% boom has more legs?
Despite the staggering rally, some brokerages believe Sterlite Tech’s run may not be over yet. Hong Kong-based CLSA believes the stock could still rally another 48% from current levels. The optimism follows a massive $1 billion order win from a U.S. hyperscaler, which analysts believe significantly strengthens Sterlite’s positioning in AI data centres while improving medium-term growth visibility.
CLSA expects the order to reinforce Sterlite’s competitiveness in global markets and is now modelling a 49% EBITDA CAGR between FY26 and FY29, while maintaining an “Outperform” rating on the stock.
Valuations a concern?
That said, valuations remain the biggest point of debate. CLSA said it derived its target price using a 50x PE multiple on one-year forward earnings estimates, citing improved order visibility and a stronger order book. Others, however, are far more cautious.
“Sterlite’s trailing P/E is very high, almost 384x multiple, with EV/EBITDA close to 36x. The high valuation levels come due to low earnings levels previously, although the market already factors in AI/data centre ramp-up and BharatNet rollouts,” Ravi Singh said.
Who are you picking?
Analysts remain divided because both companies are direct beneficiaries of the fibre and data centre supercycle, though their strategies differ meaningfully.
Balaji Rao believes HFCL offers a more diversified play. Along with optical fibre cables, the company is building a defence and aerospace franchise through Defsys, developing a large ammunition complex in Andhra Pradesh and expanding aggressively into data centre interconnect solutions.
Sterlite Tech, on the other hand, has taken a sharper and more focused bet on AI-driven connectivity infrastructure. Through its Neuralis portfolio, the company is targeting ultra-high-density fibre connectivity with pre-terminated fibre trunks, MPO assemblies and high-speed interconnect cables supporting up to 6,912 fibres.
Its vertically integrated model, spanning optical fibre manufacturing to finished connectivity products, is seen as a key advantage for hyperscalers seeking end-to-end suppliers.
Balaji Rao believes investors looking purely at the AI data centre and fibre opportunity may prefer Sterlite Tech, given its focused positioning in that segment. Still, valuation remains the defining risk. Experts point out that Sterlite Technologies currently trades at a P/E multiple of nearly 384, making it significantly riskier than HFCL, whose P/E stands above 70. Even HFCL, despite relatively lower valuations, is still considered expensive after the sharp rally.
Analysts say both stocks now sit firmly in the high-risk, high-reward category. Whether the extraordinary gains sustain from here will depend on future order inflows, execution capabilities and the ability of both companies to convert the AI and data centre boom into durable earnings growth over the long term.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
