Guotai Haitong: The performance guidance of U.S. optical communication companies reinforces the fundamentals, and we are optimistic about the opportunities at the communication turning point.

Guotai Haitong released a research report stating that AAOI's performance met expectations, with capacity guidance revised upwards once again. The vertically integrated (Scale up) optical interconnection technology centered on CPO and NPO has officially entered the commercialization phase, opening up entirely new incremental markets for the industry. The value weight of optical interconnection within AI computing clusters is expected to continue rising. Therefore, 2026 will become an important turning point for the industry: mature products will achieve scale expansion based on existing scenarios, while cutting-edge technologies like CPO and NPO will also achieve mass production simultaneously, ushering in a growth dividend driven by dual lines. It is recommended to focus on exploring investment opportunities in high-barrier niche sectors and industry leaders. As the core track with the most prominent growth elasticity in AI computing infrastructure, the industry demand for optical interconnection from 2023 to 2025 will mainly rely on two main logics: horizontal expansion (Scale out) and the iteration of transmission rates for sustainable growth. From the perspective of 2026, the horizontal expansion scenarios will still maintain a high growth trend; the current situation in which upstream manufacturers in the supply chain are concentrating on expanding production and leading companies are securing long-term large orders fully validates the high certainty of medium- and long-term demand. Meanwhile, the vertically integrated (Scale up) optical interconnection technology centered on CPO and NPO is officially entering the commercialization phase, opening entirely new incremental markets for the industry. Therefore, 2026 will be an important turning point: mature products will achieve scale expansion based on existing scenarios, while cutting-edge technologies like CPO and NPO will also achieve mass production simultaneously, leading to a growth dividend driven by dual lines. It is recommended to focus on digging into investment opportunities in high-barrier niche sectors and industry leaders. The upward trend in the value proportion of optical interconnection per cluster is an irreversible long-term trend, primarily driven not by product price increases, but by continuous iteration of bandwidth and an expanding range of computational application scenarios. The long-term sustainability of industry growth is expected. Three major layout ideas are maintained: first, prioritize allocating resources to core leaders with strong technological barriers and high performance certainty, represented by Xuchuang and its supporting industrial chain; second, grasp the opportunities for domestic substitution of core upstream raw materials, focusing on the growth potential of domestic manufacturers in fields such as optical chips, mSAP, optical fibers, isolators, and MPO connectors; third, position in new technology and application tracks that are in the industrialization cycle from zero to ten, covering directions such as NPO/CPO co-packaged optics and data center interconnect (DCI). AAOI's performance met expectations, with capacity guidance revised upwards again. In Q2 2026, revenue reached $191.9 million (up 27.0% quarter-on-quarter, up 86.4% year-on-year, previous guidance was $180198 million); GAAP gross margin was 27.7%, Non-GAAP gross margin was 29.8% (previous guidance was 29%30%). Guidance for total revenue in Q3 2026 is $255290 million (median $273 million), +32.9% to 51.1%, with the 800G data center business expected to ramp up significantly; the CATV business is projected to grow steadily ($7580 million); telecommunications and other businesses will maintain a low share. The Non-GAAP gross margin guidance is 29.0% - 30.5%, with a central tendency of 29.75%, and Non-GAAP net profit is estimated to be $10.124 million. By mid-2027, the revenue from 100G/400G optical modules is expected to exceed $9 million per month, with 800G revenue exceeding $217 million per month, and 1.6T revenue exceeding $164 million per month, contributing to an overall data center business of $471 million per month (up from the original expectation of $378 million per month in Q1, with the revised annualized output reaching $5.688 billion). The industry's holding ratio has increased, and valuations have risen to a historically above-average position, reflecting the upward expectations driven by the AI industry chain. AI-driven network upgrades, robust overseas demand, and domestic core enterprises are reaping the benefits of the global infrastructure wave. A new generation of computing infrastructure in China is commencing, ushering in a new cycle for the nationalized industrial chain. New connections are also expected to bring about a singularity in industry development in 2026, creating more investment opportunities. Driving network upgradesAI's large model training and application enhance the demand for communication capabilities, promoting rapid advancements in network innovation and the application of new technologies.