Soochow: The Guanghui Interconnect Market is expected to maintain rapid expansion of space, with a focus on laying out and configuring three core main lines.

Soochow released a research report stating that in the future, optical interconnection will be driven by diverse network connection scenarios such as Scale-out, Scale-up, and Scale-across. The overall market space in the industry is expected to maintain a high-speed expansion trend. Various technological solutions have independent market expansion bases and have long-term, broad, and sustainable opportunities for industrial development. The different routes are not completely substitutable, but differentiate in terms of technical characteristics, cost structure, and adaptability to application scenarios, presenting different growth and realization curves for different application scenarios. It is recommended to focus on the following three core themes: Big light, Small light, and New light. Key points from Soochow: Increased confidence in future demand for optical modules This week, major CSPs such as Amazon, Google, Microsoft, and Meta disclosed their latest financial reports, with a total capital expenditure of $660 billion by 2026, a significant increase of 60% year-on-year, mainly invested in AI computing power construction. The report believes that the continual significant increase in AI-related capital investment by major overseas CSP giants is crucial for network connections essential to computing clusters. GPU/TPU/ASIC and other computational chips are expected to continue to increase in volume in 2026, while the commercialization of new-generation chips will lay the foundation for demand in 2027. This will drive the bandwidth demand for computing clusters for at least the next two years with a high level of certainty. Considering the overall TCO, optical modules will have sufficient competitive advantage for a long time, and related companies will continue to benefit from the incremental volume of 800G/1.6T/3.2T optical module products. Performance growth on a quarterly basis has strong support, and it is recommended to continue to focus on core configurations. Acceleration of CPO Industrialization This week, Lumentum disclosed that it has received a multi-million dollar additional order for Scale-out scenario ultra-high-power lasers in the CPO field, to be delivered in 2027, with substantial volume expected in the second half of 2026 and the start of delivery for Scale-up CPO products by the end of 2027. NVIDIA announced at a recent network seminar that three partners, CoreWeave, Lambda, and TACC, will deploy IB CPO systems in the first half of 2026, with plans for Ethernet CPO products to ship in the second half of 2026. The report believes that the progress of the CPO industry has accelerated beyond previous expectations, with deployment in Scale-out scenarios leading the way and further expanding into the larger market space of Scale-up. As a new generation of optical interconnection solutions, the commercial value continues to be clarified, and the market space is further expanded. There will be significant progress in the CPO industry throughout the year, and it is recommended to track industrial catalysts and seize opportunities in a timely manner. NPO has unique advantages, and its commercial value should not be underestimated Tencent recently released its NPO technical specifications. NPO centralizes optical engines near device chips and can achieve single-layer Scale-up networking through Socket connections, supporting DSP-free design. According to information from recent exchanges with Zhongji Innolight, NPO has more flexibility and cost-effectiveness, is currently favored and valued by CSP customers, and may become a long-term technological choice. The report believes that NPO can achieve cost and power savings through high-density interconnection, maintain a higher level of decoupling in the supply chain, and potentially reuse the mature supply chain of optical modules. Its comprehensive competitiveness is equally outstanding, and it is likely to strengthen the medium-to-long-term growth momentum and performance growth of related targets in the industry chain. The market has paid less attention to the NPO industry in the past, and it is recommended to pay attention to the investment opportunities implied by the expected differences. Risk warning: AI construction falls short of expectations, major changes in optical interconnection technology, systemic risks.