Data center bandwidth "arms race" accelerating! JP Morgan: The compound annual growth rate of data communication will reach 35%, and 1.6T optical modules will see a 200% explosive growth.

Industry research agency LightCounting recently raised its growth expectations for the Datacom market, believing that the market's expansion speed will be faster than previously predicted. Analysts at Morgan Stanley pointed out that this revision means that the demand for optical communication devices such as optical modules will be more vigorous, thus benefiting optical component suppliers such as Coherent (COHR.US), Fabrinet (FN.US), and Lumentum (LITE.US). Morgan Stanley analyst Samik Chatterjee and others stated in an industry report, "The growth prospects for Datacom remain strong, with overall market forecasts once again raised, expected to grow at nearly 35% compound annual growth rate by 2028, driven primarily by 1.6T data rates, followed by 800G data rates." This growth rate means that the Datacom market will grow from $19 billion in 2025 to $47 billion in 2028. Chatterjee pointed out, "From the perspective of data rates, the growth during the forecast period will be primarily driven by 1.6T, expected to grow at a compound annual growth rate of around 200% to $21 billion; followed by 800G, expected to grow at nearly 26% compound annual growth rate to $21 billion. In addition, it is expected that 3.2T will make a moderate contribution by 2028, while data rates of 400G and lower are expected to decline during the forecast period." At the same time, the attach rate of optical devices per XPU continues to increase. It is expected that the comprehensive attach rate will grow from less than four times in 2025 to four and a half times in 2027. Chatterjee said, "Having said that, according to industry experts, attach rates will vary depending on the architecture, with Alphabet Inc. Class C (GOOGL.US) using optical switches, resulting in an attach rate close to 1.5 times per TPU, while NVIDIA Corporation (NVDA.US) deployment approaching 6.0 times per GPU." Furthermore, the total potential market size for optically packaged devices is estimated to reach $2 billion by 2028 and skyrocket to $11 billion by 2030. Chatterjee added, "However, Lumentum's latest guidance has forced us to predict that its CPO business will achieve approximately $2 billion in revenue in the calendar year 2028, which means that the overall size of the CPO market will far exceed industry analysts' current forecast of $2 billion in 2028. We believe industry analysts' forecasts are conservative, and subsequent updates may result in upward adjustments. Industry forecasts indicate that the non-CPO market (i.e. transceiver market) will continue to experience steady growth during this period, with a compound annual growth rate exceeding 20%, reaching over $45 billion by 2030." Morgan Stanley gave Coherent and Lumentum a "hold" rating and Fabrinet a "neutral" rating. Their target prices are $380, $1,130, and $680, respectively.