The Explosive Growth of AI Computing Power: How Have Optical Modules Moved from Supporting Roles to Central Ones?
Hello everyone, I'm your financial journalist and economist. If you've been following the tech or stock market recently, you've probably noticed a term that's become very popular – optical modules.
In the past, people thought of AI as being about large models, chips, and computing power, with optical modules playing a secondary role, simply transmitting signals, much like water flowing through pipes – invisible and intangible. But things have changed. Optical modules have not only become a central component of AI infrastructure but have also sparked a frenzy in the capital markets.
Today, I'll break down this news about optical modules in simple terms, explaining what's really happening behind the scenes, where the money is flowing, and who will be the winners in the coming years.
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Why Have Optical Modules Suddenly Become So Valuable?
The Key Reason: The Smarter AI, the Faster Data Transfer, the More Valuable the Optical Modules.
You can think of an AI data center as a supercomputer. To function effectively, this “computer” needs to process vast amounts of data, which must be transmitted rapidly between different chips and servers. Initially, with smaller amounts of data, copper wires were sufficient. However, as AI models have grown larger and data volumes have exploded, copper wires have become like single-lane roads, causing bottlenecks.
That's where optical modules come in. They use light to transmit data, offering higher speeds and wider bandwidths, essentially turning a single-lane road into an eight-lane highway.
- How Hot Is the Market?
- Stock Market Performance: The Wilshire Optical Modules Concept Index has nearly doubled this year.
- Industry Estimates: Goldman Sachs has significantly raised its forecasts for the global optical module market size over the next three years (2026-2028). For example, the forecast for 2028 has increased by 115% compared to before! This means that what was once considered a small market is now much larger than expected.
- Industry Consensus: Even executives at companies like FiberHome have remarked, “We never thought optical modules would take center stage in AI.” They are no longer just a minor part of the supply chain but a core component of the infrastructure.
In Short: The competition in AI computing power is not just about how fast the chips can calculate; it's also about how quickly data can be transferred. Optical modules, as the “data highways,” are in high demand, driving their value upward.
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Technological Evolution: From “Plug-and-Play” to “NPO” – What’s the Competition About?
The Key Reason: The Need for Faster and More Energy-Efficient Solutions
Currently, the most popular optical modules are plug-and-play types, similar to USB connectors on computers, which are easy to use and highly standardized. The standard speeds are 800G and 1.6T (the higher the number, the faster the transmission).
However, as AI clusters grow larger (e.g., with tens of thousands of GPUs connected together), traditional plug-and-play modules face limitations:
1. High Power Consumption: Plug-and-play modules require additional circuitry for conversion, leading to higher power usage.
2. Large Size: They take up space, and not many can fit in a server cabinet.
3. High Latency: Signals lose strength as they travel between chips and modules.
Therefore, the industry is turning to the next generation of technologies: NPO (Near-Package Optics) and CPO (Co-Package Optics).
- What Is NPO?
- Simply put, NPO modules are smaller and are directly mounted next to the switching chips. It’s like welding a “router” directly onto the “computer motherboard,” reducing distance and improving signal strength while lowering power consumption.
- Current Status: This is the transitional solution, and companies like NeoPhotonics, Huagong Technology, and Zhongji Xuchuang are actively promoting it. NeoPhotonics has even declared, “NPO is here.”
- What Is CPO?
- CPO represents the ultimate form, integrating the optical module, switching chip, and computing chip on a single substrate, offering the best performance and lowest power consumption.
- Current Status: The concept is perfect, but it’s very challenging to implement. Only giants like NVIDIA and Broadcom have the capability to produce CPO, and once you use CPO, you become dependent on their ecosystem.
To Put It Simply:
- Plug-and-Play Modules = External monitors (convenient but bulky and space-consuming).
- NPO = Built-in small screens (compact, efficient, and compatible).
- CPO = Retina-like displays (ultra-high performance, but require specialized facilities and are only available from top-tier companies).
The industry is currently in the transition from external monitors to built-in screens, with NPO being the hot topic.
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Industry Power Struggles: Why Isn’t Everyone Moving Straight to CPO?
The Key Reason: It’s About Who Makes the Money and Who Has the Control
You might wonder, if CPO offers the best performance, why isn’t everyone adopting it? The situation is complex, mainly due to issues of profit distribution and control:
1. Concerns of Traditional Optical Module Manufacturers:
- If CPO becomes the standard, optical module manufacturers will be marginalized, as chip manufacturers (like NVIDIA) will handle the packaging themselves.
- Companies like Zhongji Xuchuang and NeoPhotonics want to continue playing a role in the market by making NPO modules smaller and more integrated while still making a profit.
2. Concerns of Server/Switch Manufacturers:
- Companies like Dell and Huawei fear that if they use CPO, they’ll become mere assemblers, as NVIDIA or Broadcom would control all the core components.
- They prefer NPO because it maintains a decentralized supply chain, allowing them to remain active in the market.
3. Considerations of Cloud Manufacturers (Customers):
- Cloud providers (e.g., Alibaba Cloud, AWS) don’t want to be dependent on a single supplier. CPO is highly binding; choosing NVIDIA’s CPO means they might be limited to that provider’s ecosystem.
- NPO offers more flexibility, with multiple suppliers, giving cloud providers more choices and avoiding dependence.
In Conclusion: The popularity of NPO reflects a balance struck among industry players between performance and profit distribution. It enhances performance while preserving the existing supply chain structure, making it the current common ground.
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Future Trends: Where Will the Money Flow?
The Key Trend: Short-term Focus on 800G/1.6T, Medium-term Shift to NPO, Long-term Goal of 3.2T and CPO
Based on the news, here’s a clear timeline that can help you understand investment trends:
- 2024-2025 (Now): 800G and 1.6T plug-and-play modules will be the main products.
- Trend: 1.6T will start to replace 400G, representing the most profitable opportunity.
- Actions: Manufacturers will begin providing NPO samples for customer testing.
- 2026-2027 (Medium-term): 1.6T will become the standard, and NPO will start to be mass-produced.
- Trend: NPO will move from a concept to mass production. NeoPhotonics expects to receive large NPO orders in 2027.
- Technological Progress: 3.2T optical modules will begin to be commercially available.
- 2028 and Beyond (Long-term): 3.2T and higher speeds will dominate, with NPO and CPO gaining more market share.
- Market Growth: The global market for 100G+ Ethernet optical modules is expected to reach $80 billion by 2031.
Key Points: Transmission speeds are expected to double annually (400G -> 800G -> 1.6T -> 3.2T). This indicates that the optical module industry is constantly evolving, with no one-size-fits-all solutions, requiring continuous research and development.
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Potential Risks and Challenges: Don’t Just Follow the Trend, Understand the Underlying Issues
Despite the bright prospects, the industry faces challenges:
1. Technical Barriers:
- Bandwidth Limits: Physical limitations exist beyond 200G per channel.
- Packaging Challenges: More channels mean harder heat dissipation and lower yields.
- Heat Dissipation: Increased power consumption requires advanced cooling solutions, such as liquid cooling, which is costly and requires significant infrastructure upgrades.
2. Standardization Issues: Different companies use different NPO solutions, leading to fragmented markets and affecting scalability.
3. Intense Competition: NPO is highly customized, limiting opportunities for smaller manufacturers.
- CPO Uncertainties: If NVIDIA or others rapidly advance CPO and significantly reduce costs, they could disrupt the current market.
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Summary for Everyone:
1. Optical modules are essential for AI: As long as AI continues to develop and data transmission is needed, optical modules will remain in demand. They are not a bubble but a critical part of the infrastructure.
2. Focus on Innovation: This industry is constantly evolving, with new technologies emerging. Invest in companies that are well-positioned for the next generation of technologies.
3. NPO is the Current Opportunity: It balances performance, cost, and industry interests, making it the main growth driver in the next 2-3 years.
4. Leading Companies: Manufacturers like Zhongji Xuchuang, NeoPhotonics, and Huagong Technology have a competitive advantage due to their technical expertise and customer relationships.
My Advice: If you’re optimistic about AI, the optical module industry is a crucial sector to watch. However, don’t rush into investments without understanding the technological trends. Focus on companies with real orders and production capabilities in NPO and 1.6T technologies. In the world of optical communications, speed equals profit, and stability equals survival.