Haelangdal Insight: Optical Communications Revolution
The real bottleneck in AI clusters is not compute but data movement. After GPU/memory, the next investment phase is 'Interconnect' emerging as the bottleneck that determines utilization and ROI. I/O (SerDes) power, heat, and physical area constraints are growing rapidly, and the solution is the evolution of optical architecture from Pluggable to LPO to CPO. The investment strategy has a 3-layer structure: (1) Core (platform definers: switch ASIC/foundry), (2) Tollgate (connectors/lasers/test equipment), (3) Transition (800G/1.6T volumes, AEC/LPO).
Investment Confidence
Theme Analysis
Key Drivers
- NVIDIA 2026 CPO commercial year one + Coherent SAM $9.5B → $21B upgrade (OFC 2026)
- NVIDIA Spectrum-6 CPO + Vera Rubin NVL72 → Rubin Ultra 576-GPU domain mandate optics
- TSEM SiPho 5x expansion + NVIDIA $4B investment validates optical communications value chain re-rating
- AI cluster scale-out (100K+ GPUs) -- interconnect bottleneck emerging
- Optical architecture evolution: Pluggable to LPO to CPO
Risk Factors
- CPO mass production yield and Active Alignment process complexity
- Pluggable approach lasting longer than expected
- Network standard competition (InfiniBand vs. Ethernet vs. UALink)
- Transceiver price decline pressure and inventory adjustment cycle
Catalysts
- InP 6-inch wafer yield stabilization (2026-2027)
- Tower Q4 2025 record + NVIDIA 1.6T partnership, POET Infinity 800G H2 2026 shipment
- Broadcom Tomahawk 5 CPO (Bailly) mass production shipment
- NVIDIA Spectrum-X Photonics GTC announcement
- Marvell Celestial AI acquisition completion ($5.5B)
Sub-Themes(11)
Optical Transceivers & Modules
The core of data center internal connectivity. Currently transitioning from 800G to 1.6T generation, with the high-speed optical transceiver market surging due to AI server demand explosion. Coherent has strengthened market dominance following the II-VI merger.
Silicon Photonics & CPO
Next-generation technology integrating optical components onto semiconductor chips. CPO (Co-Packaged Optics) integrates switch ASICs and optical engines into a single package, improving power efficiency by 30-40%. Mass production imminent in 2025-2026.
Optical Fiber Infrastructure
The physical backbone connecting data centers internally and externally. Meta's $6B optical fiber long-term contract signals market growth. Both data center interconnect (DCI) and internal cabling demand are growing in tandem.
Networking ASICs & Switches
The brain of AI cluster scale-out. Broadcom Tomahawk/Jericho and Marvell Teralynx dominate. 800G to 1.6T switch transition and NVIDIA Spectrum-X Ethernet-based AI fabric expansion.
Optical Components & Lasers
Core components of optical transceivers including laser diodes, optical amplifiers, and WDM filters. The high-power laser and low-power optical component market is growing with surging data center optical communications demand.
Optical Communications EMS & ODM
Specialized manufacturers of optical transceivers and networking equipment. Fabrinet is the leading player, handling contract manufacturing for Coherent, Lumentum, and others. Thailand-based low-cost manufacturing competitiveness.
AEC & LPO Silicon (Transitional)
Transitional solutions between Pluggable and CPO. AEC (Active Electrical Cable) is copper-based, supporting up to 800G/1.6T with 25-50% power savings vs. optics. LPO (Linear Pluggable Optics) reduces DSP burden for lower power. Credo leads the AEC market, sampling 1.6T AEC. 'Copper as long as possible, optics when necessary' is the industry consensus.
Optical Connectors & Interfaces (Tollgate)
The critical tollgate for CPO. Blind-Mate connectors enable connection/disconnection without direct access to optical ports, ensuring field serviceability. ELSFP (External Laser Source Form Factor Pluggable) is emerging as the standard. SENKO secured market leadership as NVIDIA's CPO partner.
Test & Measurement Equipment (Tollgate)
Combined optical-electrical testing is the key bottleneck of the CPO era. 1.6T transceiver testing requires 240Gbps/lane sampling oscilloscopes, TDECQ measurement, and simultaneous optical-electrical probing. Keysight leads with DCA-M, while Viavi and EXFO split production/field testing. ATE players (Teradyne, Advantest) are also expanding into optoelectronic testing.
CPO Packaging & Assembly
The real bottleneck for CPO is the Active Alignment process. Precision 6-DOF alignment where robots fine-tune positioning with laser feedback is essential. Process know-how that cannot be replicated by simply purchasing equipment serves as a moat. ficonTEC leads the market, while MRSI (Mycronic) pursues with sub-micron die bonding. TSMC COUPE has emerged as the de facto standard for CPO optical engines.
External Laser Source (ELS)
A key component solving CPO's thermal and serviceability challenges. By separating lasers from the ASIC package into front-panel pluggable modules, it enables thermal management and hot-swap serviceability. ELSFP (External Laser Source SFP) form factor is the standard. Lumentum leads with UHP (Ultra-High-Power) 1310nm lasers, sampling in 2026 Q1. A tollgate that is essential regardless of which platform wins.
Related Investment Ideas
17Coherent — Dominant Force in the Optical Transceiver Market
Post II-VI merger, #1 in optical transceiver and laser markets. Top beneficiary of the 800G→1.6T transceiver transition. Revenue accelerating on explosive AI data center demand. Silicon photonics and CPO capabilities secured.
Marvell — The Dark Horse of AI Networking ASICs
Specialist in networking ASICs and custom silicon. Teralynx switch ASIC emerging as a Broadcom alternative. Full AI infrastructure coverage from big tech custom AI chips (Amazon Trainium, etc.) to optical DSPs.
Corning — The Hidden Champion of Optical Fiber Infrastructure
Global #1 in optical fiber and specialty glass. Meta's $6B long-term contract puts the data center optical fiber market back in focus. Turnaround expected in optical communications from AI data center construction rush and 5G expansion.
Lumentum — Core Optical Component & Laser Supplier
Specialist in data center optical communication lasers and components. Strengths in EML/DFB lasers and optical amplifiers. Revenue growth expected from 800G/1.6T transceiver demand. Dual track with 3D sensing business.
Fabrinet — Hidden Champion of Optical Communications EMS
Specialist in optical transceiver and networking equipment contract manufacturing. Production partner for key customers including Coherent and Lumentum. Volume surging on explosive AI data center optical demand. Thailand-based low-cost manufacturing competitiveness.
Tower Semiconductor — The Undisputed Leader in Silicon Photonics Foundry
The #1 foundry for silicon photonics PIC manufacturing. Supplies SiPho chips to major optical networking firms including Coherent via the PH18 platform. SiPho revenue reached $228M (+115% YoY), with a $920M capacity expansion targeting 5x by end of 2026. Targets $2.84B revenue and 39.4% gross margin by 2028. A core infrastructure beneficiary of the CPO/1.6T transition.
Credo Technology — The Definitive AEC Leader, Neural Network of AI Clusters
De facto standard in the Active Electrical Cable (AEC) market. HiWire AEC is the de facto standard for 400G/800G in-rack copper connectivity. 25-50% power savings and 100-1000x reliability improvement vs. optical. 1.6T AEC/DSP sampling underway. Hyperlume acquisition in 2025 provides optical hedging. 'Copper as long as copper works' is the industry consensus, positioning Credo as top beneficiary.
Astera Labs — PCIe Retimer Dominator, Expanding into AEC
Leading PCIe retimer market. Supplying critical signal integrity components for PCIe Gen5/Gen6 connectivity in AI servers. Challenging Credo's AEC market with Taurus AEC. Also targeting memory expansion with CXL (Compute Express Link) controllers. Growth proportional to GPU shipments as multiple retimers per AI server.
Keysight — The Tollbooth of 1.6T Optical Testing, Essential CPO-Era Infrastructure
Leading the 1.6T optical transceiver test equipment market. DCA-M sampling oscilloscope is the de facto standard for 240Gbps/lane optical signal analysis. Industry-best precision in TDECQ, OMA, and RLM measurements. In the CPO era, simultaneous electrical+optical testing becomes essential, making Keysight the 'tollbooth that everyone needs regardless of who wins.' Keysight equipment is mandatory from R&D through mass production.
Viavi Solutions — Field Optical Testing Champion, Splitting Production/Field Territory
Leading provider of optical test and measurement equipment for production and field use. LightDirect platform is widely deployed in optical transceiver production lines and data center field testing. While Keysight dominates R&D and high-precision testing, Viavi owns the production and field segment. The MAP-300 platform covers connector inspection, auto-cleaning, and high-speed measurement. Field testing demand grows in lockstep with AI infrastructure expansion.
TSMC — CPO Packaging Platform, Standard Dominance with COUPE
Developer of COUPE (Compact Universal Photonic Engine), the de facto standard for CPO optical engines. Both NVIDIA Spectrum-X Photonics and Broadcom next-gen CPO are COUPE-based. Leading SoIC (System on Integrated Chips) technology integrating 2nm process + 2.5D/3D packaging + silicon photonics into a single package. TSMC ecosystem lock-in deepens as CPO proliferates.
Samsung Electronics — Targeting 2027 CPO Commercialization, Chasing TSMC
Significantly expanding silicon photonics R&D targeting 2027 CPO commercialization. Singapore R&D center serves as forward base, recruiting TSMC veteran King-Jien Chui and Intel CPO core talent. The only IDM with foundry + HBM + advanced packaging, offering vertical integration synergy potential. However, as a latecomer vs. TSMC COUPE, closing the technology gap is key.
Alphawave Semi — Core Supplier of 224G SerDes IP
Specialist in high-speed SerDes IP and custom silicon. Providing critical IP for AI data center connectivity including 224G PAM4 SerDes, UCIe 64G, and UALink controllers. Covering AEC market with Cu-Wave PAM4 DSP, optical retimer market with O-Wave DSP, and coherent market with Co-Wave. Leading 224G SerDes IP on TSMC 2nm process. Alphawave IP is essential for big tech custom chip design.
OE Solutions — Korea's Hidden Optical Transceiver Champion, ITLA Localization
First in Korea to successfully localize next-gen coherent optical transceiver ITLA (Integrable Tunable Laser Assembly). Possesses silicon photonics-based monolithic PIC + InP laser heterogeneous integration technology. Mass-producing 400G QSFP-DD/OSFP transceivers. Technology gap vs. global big tech exists, but holds price competitiveness for domestic data center and telecom equipment markets.
Ciena — Dominating Optical Networking with WaveLogic 6, Backlog $7.8B
#1 optical networking systems provider. Q1 FY2026 revenue $1.43B (+33% YoY), adj. EPS $1.35 (+111%). Cloud revenue surged to 42% of total. WaveLogic 6 Extreme delivers industry-only 1.6Tbps coherent engine. Backlog $7.8B provides 2+ years revenue visibility.
POET Technologies — Binary Bet on Optical Interposer Platform
Platform IP 'Optical Interposer' enabling passive pick-and-place optical-module assembly. Marvell's Celestial AI acquisition (up to $5.5B) validates POET's platform as the foundation of Photonic Fabric. First $5M Infinity 800G production PO in Oct 2025, ship H2 2026. 2026–2028 production-yield proof is the entire story — a textbook high-risk / high-reward optionality position.
Lumentum — Vertically Integrated Optics Giant, Possible CPO Winner or Acquirer
One of the largest vertically integrated laser/module players, positioned in both Stage 2 (III-V components) and Stage 4 (optical module/system) of the optical stack. Structural beneficiary if its own products extend into the CPO transition, and frequently mentioned as a potential acquirer of upstream platforms like POET. AI DC optical transceiver demand drives direct exposure.
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