LEDs are lighting the way to the future of, well, lighting, and the industry titans are no dim bulbs. They're screwing the LED leaders into their sockets, making acquisitions that should brighten their own prospects.

The latest beneficiary is Cree (NASDAQ:CREE), or so it is rumored, which shot up in price last Friday on rumors that General Electric (NYSE:GE) would be making a bid for the LED player. It's a rumor grounded in common sense.

Just last week, Royal Philips Electronics (NYSE:PHG), which already owns LED maker Lumileds, closed on its $731 million acquisition of Color Kinetics, a small but growing player in the LED arena that has a lock on many of the industry's patents. Another lighting giant, Siemens (NYSE:SI), previously teamed up with Osram to form an LED joint venture, so adding Cree would keep GE in the spotlight.

Yet there's a case to be made that this is a burnt-out idea. For one, it's not new. Every so often, Cree is the subject of a buyout rumor. Some analysts believe if GE wanted to make a splash in LEDs, it would buy Japanese industry leader Nichia, a company it already has a strategic alliance with.

The stock's high short interest also suggests a bet against a buyout, and the jump last week would be indicative of shorts covering on the rumor.

Yet it's also true that GE has been trying to increase the shadow it casts over the industry. Last year, it purchased the half of GELCore that it didn't own from EMCORE (NASDAQ:EMKR) for $100 million. It's the GELCore division -- which GE renamed Lumination -- that is outfitting 500 Wal-Mart (NYSE:WMT) stores with LED-powered commercial refrigerated display cases. Adding Cree might be a cheaper way for it to pick up the pace while also adding a superior product. According to American Technology Research, Cree's LEDs are 30% to 50% more efficient than those from either Nichia or Philips.

A GE-Cree marriage would complete the circuit for lighting, from socket to bulb.

Although there are attempts at the congressional, state, and local levels to get more efficient lighting installed -- usually centering on compact fluorescent lights, or CFLs -- light-emitting diodes are even more efficient, though currently they sport a higher cost. Philips has readily admitted to being one company pushing for mandatory measures because, as the biggest seller of light bulbs, it doesn't want competitors to continue selling incandescent bulbs if it stops selling them. GE has opposed banning incandescent bulbs.

While CFLs are more energy-efficient than incandescent bulbs, they don't work in all instances. For example, the fine print on a CFL bulb will tell you that they're not very useful in enclosed fixtures. Using them in lamps is OK, but putting them in overhead lighting fixtures will cause them to burn out rapidly. LEDs don't have such problems, and their cost is dropping.

As the large bulb makers continue to shine a light on LEDs, we'll see costs drop further and their use in residential applications grow. Cree, despite setbacks, should be a part of it whether solo or as part of GE or some other lighting giant.

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Fool contributor Rich Duprey owns shares of Wal-Mart but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy. Wal-Mart is a recommendation of Motley Fool Inside Value.