The Sherman factory will produce indium phosphide, a compound semiconductor the United States has under built for decades, used to build the laser components that carry data between AI chips at the speed of light.
The lasers that carry data between AI chips at the speed of light run on a material whose domestic manufacturing base has been thin for years. A $50 million federal grant, stacked on roughly $17 million in state and local incentives, is now trying to change that at a single factory in Sherman, Texas.
That factory belongs to Coherent, a maker of the optical components and compound semiconductors used to wire AI systems together. According to a post on NVIDIA's corporate blog tied to this week's groundbreaking, the company is expanding its manufacturing building at the Sherman site with the help of a CHIPS Act award. NVIDIA founder Jensen Huang and Coherent CEO Jim Anderson appeared together at the ceremony, with Sherman Mayor Shawn Temann and Texas Economic Development and Tourism executive director Adriana Cruz also delivering remarks.
The expansion targets indium phosphide, a compound semiconductor used to build the laser diodes and optical components that convert electrical signals into the light carrying data between AI servers, racks, and data centers. As AI clusters have grown, the bandwidth required between chips has pushed past the limits of copper, and optical interconnects built on InP substrates have become a meaningful layer of the stack. Coherent describes the new line as the "world's first" 6-inch InP fab, a claim the company has made in its own announcements and that has not been independently verified for this report.
What the expansion will and will not change is the sharper question. The roughly $50 million from the CHIPS Act, layered on about $17 million from Texas and Sherman, is a real but modest slice of the capital required to build domestic InP capacity at scale. It also sits inside NVIDIA's announced $500 billion U.S. AI-infrastructure buildout, a figure the company has promoted as part of its broader U.S. infrastructure commitment. Treating a groundbreaking as proof of reindustrialization, rather than as a down payment on it, would mistake the photograph for the factory.
Two open issues are worth flagging. First, whether the federal grant is flowing to capacity that would have been built anyway. Coherent has been expanding InP production globally as AI demand has grown, and the public subsidy here is a fraction of total corporate capital spending. Second, the gap between ribbon-cuttings and operational output. The U.S. record on semiconductor reshoring is uneven, with several announced fabs arriving years late, scaling down, or shifting to mature-node products once the cameras moved on. Whether Sherman ships 6-inch InP wafers at the volume and on the timeline Coherent has signaled will be the real test of what this week's ceremony bought.
The compound-semiconductor layer of the AI supply chain has been thin in the United States for decades, in part because the volumes needed to justify a leading-edge fab were small until AI optical links turned into a mass market. The Sherman expansion, if it lands, would push that boundary. If it does not, the more durable story is that the country is still working out how to pay for the physical materials that connect its chips to each other.