China Galaxy Securities: Deepen exploration of the optical communication industry chain, focus on policy-driven directions such as AIDC and 6G.

China Galaxy Securities released a research report stating that the valuation of the telecommunications industry still does not fully reflect its high growth potential, and a bull market is expected to continue. The impact of token economics may deepen, and the combination of production capacity, technology, and customer advantages may solidify the strong getting stronger trend, with undervalued tracks welcoming a recovery window. Looking ahead to the second half of 2026, telecommunications will transition from "breakthrough points" to "self-reliant chains," focusing on the deep integration of industries. Against the backdrop of Token economics reshaping the production functions of the AI era, the business climate is expected to further improve. The company recommends delving deeper into the optical communications industry chain and focusing on policy-driven directions such as AIDC+6G. Key points from China Galaxy Securities: Telecommunications Industry Overview in the first half of 2026 Telecommunications led the gains, with high realization of performance in optical modules, devices, and chips. In the first five months of 2026, the A-shares SW telecommunications industry index rose by 55.9%, ranking first in the industry. The top performers were optical fiber optic cables (+155.6%), optical modules, devices, and chips (+87.6%), and IDC and computing power rental (+40.8%). Token consumption increased significantly due to the penetration of intelligent bodies like OpenClaw, leading to industry-wide inflation and continued high trading activity for some high-priced stocks. The proportion of public funds overweighting the SW telecommunications sector in Q1 2026 reached 13.1%, exceeding 7.2%, both hitting new highs since 2016. The company believes the valuation of the telecommunications industry still does not fully reflect its high growth potential, and a bull market is expected to continue. Outlook for the telecommunications industry in the second half of 2026 The influence of token economics may deepen, with a focus on production capacity, technology, and customer advantages, solidifying the trend of the strong getting stronger and undervalued tracks welcoming a recovery window. Looking ahead to the second half of 2026, telecommunications will transition from "breakthrough points" to "self-reliant chains," focusing on industry deep integration. In the background of Token economics reshaping the production functions of the AI era, the business climate is expected to further improve. Major global CSP vendors have exceeded expectations in CAPEX, and with the formation of commercial closed loops, there is expected to be a substantial increase in traffic entry in the next 5 years. Continuous technological iteration at the hardware level and optimization of solutions, major companies can leverage production capacity advantages to achieve higher economies of scale and scope, technological advantages to increase yield and reduce production costs, and enhanced customer visibility to compete for industrialized scale and enhance order visibility, making it difficult for the strong to be shaken. Delve deeper into the optical communications industry chain and focus on policy-driven directions like AIDC+6G (1) Operators: Undervalued high dividend, traditional business steady operation, telecommunications+data communications driving, Token plans enhance end consumer stickiness, the impact of value-added tax gradually dissipates, ARPU revitalizes; (2) Optical Communications: The most elastic track in the AI arms race, high technological barriers build moats, some upstream materials are still in short supply, amplifying domestic substitute income. Under the AIDC's "non-blocking direct connection" architecture, fiber optic consumption has increased by 5-10 times, with domestic manufacturers actively expanding overseas, constrained supply may lead to a simultaneous increase in volume and price; (3) AIDC: Domestic computing power is gradually increasing, the "chip shortage" problem is being solved, the climb of AIDC cycle is relatively short, the shelf rate is expected to bottom out and rise, the co-ordination of computation and electricity opens up a multi-dimensional cost reduction path, and leasing prices maintain a relatively high level; (4) 6G: The Ministry of Industry and Information Technology is about to launch a trial run, with independent innovation of technological solutions, new business application scenarios, and terminal products already in a tug-of-war. The scarcity of resources in the low-orbit frequency band of satellite Internet is increasing, expanding the boundaries of space computing. Risk warning: Risks associated with fluctuations in overseas industrial and trade policies; risks of AI application development falling short of expectations; risks of major CSP vendors' capex declining; risks of changes in the optical communications technology path, etc.