Summary of Key Points
The surge in demand for AI computing power has driven the "optical" industry chain (including optical modules, fiber optic cables, etc.) into a period of simultaneous increase in volume and price. Marvell, an American company specializing in optical connections, saw its stock soar by 32% due to NVIDIA CEO Jensen Huang's positive outlook on the company's potential to reach a trillion-dollar market value. Stocks of Chinese optical module manufacturers such as Tianfu Communication, Zhongji Xuchuang, and New Yisheng, as well as fiber optic cable companies like Hengtong Optoelectronics, also experienced significant gains. Technologically, optical modules are transitioning from 800G to 1.6T/CPO (Co-Packaged Optical Subsystems), with Chinese manufacturers accounting for over 60% of the global market share. However, the supply side faces shortages of critical materials, and the tight supply of fiber optic cables is expected to persist due to increased overseas demand and technological advancements.
1. Jensen Huang's Remark Sparks a Surge in A-share Optical Module Stocks
The sudden popularity of optical modules was triggered by a statement from NVIDIA CEO Jensen Huang at the Taipei Computer Show: "Marvell could become the next trillion-dollar company." Marvell's stock soared by 32.52% the following day, driving up the prices of related A-share stocks. In China, companies like Tianfu Communication, Zhongji Xuchuang, and New Yisheng saw substantial gains on the morning session: Tianfu rose 14.56%, Zhongji rose 10.38%, and New Yisheng rose 8.94%. Even the company that supplies them with testing equipment, Lianxun Instruments, saw a 11.34% increase in its stock price, reaching 2,000 yuan per share. Zhongji Xuchuang's market value reached 1.5 trillion yuan, and the combined market value of these three companies exceeded 2.6 trillion yuan. This market surge is entirely due to the increased demand for AI computing power.
2. Optical Module Technology Advancing Towards Higher Speeds, with Chinese Manufacturers Dominating the Global Market
Optical modules act as the "high-speed data lines" in data centers that transmit AI computing power, and faster speeds are highly desirable. The industry is moving from 800G (800G of data per second) to 1.6T, 3.2T, and even CPO (Co-Packaged Optical Subsystems), which integrate optical modules and chips for higher efficiency:
- Marvell already offers 800G and 1.6T products.
- Zhongji Xuchuang is mass-producing 1.6T products and is developing 2T versions.
- New Yisheng has seen a significant increase in 1.6T orders this year, with a focus on delivering both 800G and 1.6T products.
- Tianfu Communication is supplying components for CPO applications.
Chinese manufacturers hold more than 60% of the global market share, dominating the mid-to-high-end market, which is a key reason for the enthusiasm surrounding A-share optical module stocks.
3. Abundant Orders for Optical Modules, but Shortages of Core Components
Despite the high demand, optical module manufacturers are facing challenges with shortages of critical upstream materials:
- Faraday rotors: These small components are produced by companies in the United States and Japan. The U.S. companies prioritize their own needs, leaving a large supply gap in Japan.
- Indium phosphide substrates: A core material for optical modules, new production capacity is not yet sufficient to meet demand, leading to tight supplies.
- Additionally, while 800G products are still being mass-produced, the transition to 1.6T products requires factories to produce multiple generations of products simultaneously, increasing resource allocation pressures.
4. Fiber Optic Cables Also Seeing Growth: Technological Breakthroughs and Increased Overseas Demand
The success of optical modules has boosted fiber optic cable prices as well. Hengtong Optoelectronics has had two consecutive daily limit-up gains, with its stock price reaching a record high, thanks to the development of the world's first "three-band ultra-low loss multi-core fiber optic cable." This innovation essentially triples the capacity of traditional cables, meeting the massive bandwidth requirements of AI computing. Overseas demand is even stronger: NVIDIA and Corning are collaborating to increase optical connection production by tenfold, and Meta has placed a $6 billion order with Corning. Chinese fiber optic cable exports grew by double digits in the first quarter, with many companies having orders booked through 2028. Export volumes increased by 263% year-over-year, and average prices rose by 204%, indicating a robust industry.
5. Tight Fiber Optic Supply in the Short Term
Although fiber optic demand is soaring, supply will not keep up in the short term. Global fiber optic demand this year is expected to be 800 million kilometers, with a shortage of 5%-10%. Companies are expanding production capacity: Far East Co., Ltd. plans to build new facilities for 1,800 tons of optical fibers, and companies like FiberHome and Hengtong Optoelectronics are increasing production by 1,300 tons and 800 tons, respectively. However, the expansion cycle for optical fiber production takes 1.5 to 2 years, so the tight supply situation will continue. This means fiber optic prices are likely to remain high, providing stable profits for related companies.
Conclusion
The explosion in AI computing power has made optics a critical component of infrastructure development. The simultaneous increase in volume and price of optical modules and fiber optic cables is a result of technological advancements and global demand. Although there are supply-side bottlenecks, the long-term outlook is positive as long as AI computing power demand continues to grow. Investors should be aware of short-term stock price fluctuations, but the industry's fundamentals are solid.