China Securities Co., Ltd.: High-speed optical module demand continues to grow rapidly, and scale-up is expected to open up new market opportunities.

China Securities Co., Ltd. Securities issued a research report stating that with the rapid upgrading and iteration of GPUs and ASICs, computing power performance continues to improve, while the demand for data transmission also increases significantly. In AI data centers, more and more customers tend to choose network hardware with larger bandwidth. The larger the bandwidth, the lower the cost, power consumption, and size per unit bit transmitted. The high growth of 800G optical modules has already reflected the urgent demand for bandwidth in AI. In 2026, the demand for 800G optical modules is expected to continue to maintain a high-speed growth trend, and the shipment scale of 1.6T will also increase significantly, while the R&D of 3.2T optical modules is also officially underway. It is recommended to focus on optical module/optical device/optical chip sectors, including leading optical module companies; optical module companies expected to achieve market and customer breakthroughs; upstream optical chip/laser and optical device companies; and some companies entering this field through acquisitions. Optical module/optical device, connector sector performed the best in the first three quarters of 2025 According to the segmentation of various sub-sectors of the communication industry by China Securities Co., Ltd.'s communication team, in the various sub-sectors of communications, the top three year-on-year revenue growth rates in 2025Q1-Q3 are: optical device/optical module (66.2 billion yuan, up 65%), connector (10 billion yuan, up 19%), ICT equipment (231.3 billion yuan, up 15%), all mainly driven by AI. The bottom three year-on-year revenue growth rates in 2025Q1-Q3 are: industrial Internet (7.8 billion yuan, down 26%), smart card (3.1 billion yuan, down 21%), intelligent gateway (8.3 billion yuan, down 12%). Among the sub-sectors, the top three year-on-year growth rates in net profit attributable to mothers in the first three quarters of 2025 are: optical device/optical module (16.94 billion yuan, up 123%), connector (0.82 billion yuan, up 62%), IDC (6.5 billion yuan, up 52%, showing signs of improvement, also related to the significant investment income of Range Intelligent Computing Technology Group). The bottom three year-on-year growth rates in net profit attributable to mothers in the first three quarters of 2025 are: military communication (-0.16 billion yuan, down 194%), smart card (-0.02 billion yuan, down 102%), intelligent gateway (0.4 billion yuan, down 86%). In the first three quarters of 2025, among the net profits attributable to mothers of communication sub-sectors, the optical device/optical module and connector performed well. This is mainly due to the strong demand for AI, with a significant increase in demand for optical modules and copper cables; while the military communication, smart card, and intelligent gateway sub-sectors saw a significant decline, mainly affected by downstream demand cyclic fluctuations. The top three sub-sectors with the highest year-on-year revenue growth rates in the third quarter of 2025 were: optical module/optical device (25.5 billion yuan, up 62%), connector (3.6 billion yuan, up 23%), ICT equipment (78.3 billion yuan, up 16%). The bottom three positions in year-on-year revenue growth rates in the third quarter of 2025 were: industrial Internet (2.5 billion yuan, down 22%), smart card (1 billion yuan, down 15%), unified communication services (4.6 billion yuan, down 11%). In the third quarter of 2025, the sectors with outstanding year-on-year net profit performance were: IDC (4.43 billion yuan, up 231%, related to the significant investment income from Range Intelligent Computing Technology Group), private network equipment (0.33 billion yuan, up 175%), optical module/optical device (6.95 billion yuan, up 125%). The bottom three year-on-year growth rates in net profit attributable to mothers in the third quarter of 2025 were: wireless feeder (-0.04 billion yuan, down 110%), Beidou and satellite (-0.002 billion yuan, down 100%), military communication (-2 billion yuan, down 80%). The high growth in some areas is mainly related to the base, and it is recommended to pay attention to both the absolute values of revenue and profit. Optical modules: High-speed optical module demand continues to grow rapidly, and Scale-up is expected to open up new market space With the rapid upgrading and iteration of GPUs and ASICs, computing power performance continues to improve, while the demand for data transmission also increases significantly. In AI data centers, more and more customers tend to choose network hardware with larger bandwidth. The larger the bandwidth, the lower the cost, power consumption, and size per unit bit transmitted. The high growth of 800G optical modules has already reflected the urgent demand for bandwidth in AI. China Securities Co., Ltd. believes that in 2026, the demand for 800G optical modules is expected to continue to maintain a high-speed growth trend, and the shipment scale of 1.6T will also increase significantly, while R&D of 3.2T optical modules is officially underway. Looking at Nvidia's GPU roadmap, the company's product upgrade cycle has been compressed to a pace of one generation per year, with increasing speed and bandwidth. From 2023-2024, the company introduced the Blackwell platform, with a NVLink 5 switch with 1800GB/s, 800G CX8 network card, and 51T Spectrum5 Ethernet switch; to 2025-2026, the Rubin platform was announced, with a NVLink 6 and NVLink7 switch with 3600GB/s, Spectrum6 CPO switch with 102T, and CX9 network card with 1600Gbps; and from 2027-2028, the Feynman platform was introduced, with NVLink8 switch, Spectrum7 CPO switch with 204T, and CX10 network card. Looking at Google's TPU product evolution from the V2 product in 2018 to the V7 Ironwood in 2025, ICI bandwidth continues to increase. The TPU V2 product used a 2D Torus architecture, with 256 chips in a single superpod and ICI bandwidth of 800GB/s; the Ironwood chip uses a 3D Torus network topology, with ICI bandwidth of 1200GB/s, using 800G OSPF optical module, achieving a single optical channel rate of 200Gbps, and connected through OCS. Currently, the main demand for optical modules in the industry comes from Scale-out networks. Scale-out typically refers to horizontal expansion, increasing the number of computing nodes to enhance overall processing capacity to meet challenges of high concurrency or large data volumes. Most newly built large clusters are on a scale of over 10,000 cards, and can reach up to several tens of thousands of cards, highlighting the importance of Scale-out. In addition to Scale-out networks, the future demand for optical modules in Scale-up networks will be very broad. Scale-up typically refers to vertical expansion, enhancing computing capacity by increasing the number of GPUs/XPUs in a single computing node. Initially, eight-card server products were dominant, with Scale-up domains gradually increasing to 36/64/72, transitioning to rack-level single-node product forms. Looking at the current XPU products in the industry, the bandwidth of Scale-up is significantly higher than Scale-out. By comparing the technical parameters of NV's GPUs and ASIC technologies, the average Scale-up bandwidth of XPUs is 10Tbps, while Scale-out bandwidth is 800Gbps, resulting in a Scale-up to Scale-out bandwidth ratio of 12.5. According to Broadcom CEO Hock's interview records, the company believes that the market space for Scale-up is 5-10 times that of Scale-out. China Securities Co., Ltd. believes that this refers to network hardware, including switches, optical modules, copper cables, and PCBs. Therefore, various sub-areas of the network sector are expected to benefit. As Scale-up domains expand, signal transmission bandwidth continues to increase, and the transmission distance of electrical signals in metal media is greatly limited, leading to increased heat generation and power consumption during the transmission process, affecting the performance of GPU and switch chips. Therefore, optical interconnection is likely to become the mainstream solution in the Scale-up domain in the future, addressing bottlenecks such as distance and bandwidth. In addition to solutions like OIO, Google, Meta, and Huawei have already begun using optical modules to build Scale-up networks. Analyzing the mainstream network architectures in the industry, the demand for optical modules driven by Scale-up is vast. For example, Nvidia's Blackwell platform has a bandwidth of 7.2Tbps, nine times the bandwidth of Scale-out, so as the Scale-up domain expands, adopting a two-tier fat-tree architecture, the ratio between a single GPU and 800G optical module could reach 1:36, providing ample incremental space. Looking at the network architectures of overseas CSP manufacturers, the market space could be very large if all Scale-up domains were to adopt optical modules in the future, possibly 5-8 times the current level. For example, AMD's MI400 series products have higher bandwidths for both Scale-up and Scale-out compared to the industry average, with a high proportion of optical modules. China Securities Co., Ltd. continues to recommend focusing on the optical module/optical device/optical chip sector, including leading optical module companies; optical module companies expected to achieve market and customer breakthroughs; upstream optical chip/laser and optical device companies; and some companies entering this field through acquisitions.