Huayuan Securities: Optical Internet Technology Continues to Upgrade, NPO/CPO Accelerates Large-scale Implementation

The Zhitong Finance App learned that Huayuan Securities released a research report saying that AI computing power infrastructure continues to expand, demand for high-speed optical connectivity is growing rapidly, and core devices such as 800G and 1.6T optical modules as well as upstream optical chips and lasers have become key beneficiaries in the industry chain. AI computing power clusters continue to expand, and bottlenecks in bandwidth and power consumption are driving the upgrading of data center interconnection to high-density optoelectronic fusion architectures. The bank believes that the growth in demand for AI optical interconnection is driving core optical devices into a tight balance between supply and demand, and manufacturers with production expansion capacity, capacity reserves, and customer verification advantages are expected to benefit first, so it gives the communications industry an “optimistic” rating.

The main views of Huayuan Securities are as follows:

The performance of overseas optical communication companies continues to increase, and demand for AI data centers accelerates transmission to high-speed connectivity

AI computing power infrastructure continues to expand, and demand for high-speed optical interconnection is growing rapidly. 800G and 1.6T optical modules, as well as core devices such as upstream optical chips and lasers, have become key beneficiaries in the industrial chain. The performance of overseas optical communication companies continues to increase, and demand for AI is driving the boom in high-speed optical modules and core optical devices. 1) Lumentumfy26q4 achieved revenue of US$1,006 million, +109.3%, of which component business revenue was US$649 million, +102.7% YoY, and demand for core devices such as high-power CW lasers and EML continued to increase; 2) Coherent's data center business increased 59% year over year in FY26Q4, and 800G and 1.6T optical transceivers became the main growth direction; 3) According to the AOIFY26 Q2 financial report, data center business revenue increased 140.4% year on year, 800G product revenue The year-on-year increase was more than tenfold.

AI infrastructure is upgraded to high-density interconnection, and NPO/CPO is expected to be implemented at an accelerated pace

AI computing power clusters continue to expand, and bottlenecks in bandwidth and power consumption are driving the upgrading of data center interconnection to high-density optoelectronic fusion architectures. Nvidia launched products such as Spectrum-XEthernet Photonics based on silicon optical technology to push CPO from technology verification to industrial application. Looking at the industrial path, NPO is expected to become a more definitive transition plan in the short term, while CPO represents the long-term direction of evolution. Lumentum CEO said in the FY26 Q4 financial exchange that the company has received the first external light source (ELS) module purchase order, which is expected to be delivered in the second half of 2027. At the same time, demand for ultra-high power laser chips is expected to begin in the second half of 2027, and large-scale deployment before the customer's CPO in 2028; Coherent said that customer participation in NPO/CPO projects from FY26 Q3 to Q4 has increased significantly, and almost all large strategic customers are advancing related projects; the company supports NPO/CPO The PhotonLink platform is expected to start contributing initial revenue in FY27 Q2, and the Scale-Up CPO is expected to start contributing revenue in the second half of 2027.

Supply and demand for core optical devices is tightening, and manufacturers lock in orders to promote the expansion of the industrial chain

NPO/CPO is gradually entering the industrial introduction stage. The bottleneck in the industrial chain is shifting from traditional optical module manufacturing to upstream core optical devices. High-power CW lasers, InP chips, and optical engines may become key links. Lumentum said in the FY26 Q4 public exchange that demand for AI data centers continues to rise, and the supply and demand for high-power lasers is still tight. At the same time, the company is actively promoting plans to expand production at two indium phosphide fabs in Japan, and the transformation of gallium arsenide to indium phosphide at the US Greensboro plant is going well; Coherent said that the 6-inch InP production line in Texas and Sweden continues to expand, and FY26 Q4's InP laser production is expected to increase by about 80% year on year. At the end of the year, internal InP production capacity doubled year-on-year, one quarter ahead of schedule, and is planned to more than double this by the end of 2027. The bank believes that the growth in demand for AI optical interconnection is driving core optical devices into a tight balance between supply and demand, and manufacturers with production expansion capacity, capacity reserves, and customer verification advantages are expected to benefit first, so it gives the communications industry an “optimistic” rating.

Recommended targets: optical modules: Zhongji Xuchuang, Xinyisheng, Dongshan Precision, Guangxun Technology; optical devices: Tianfu Communications, Yuanjie Technology, Taichen Light, Optical Bank Technology, Changguang Huaxin; Connectors: Dingtong Technology, Ruikeda, Hongrida.

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