China Galaxy Securities Co., Ltd. has released a research report highlighting that the 27th China International Optoelectronic Expo, scheduled for September 9-11 in Shenzhen, marks a pivotal moment for the optical communications sector. The report notes that technological evolution in the industry has entered a critical phase, with the value chain's focus shifting from traditional optical module packaging toward foundational core components such as light sources, silicon photonics chips, precision coupling, and high-density connectivity solutions.
According to the brokerage, the industry is experiencing a state of tight supply-demand balance, with premium products facing supply shortages. The firm believes the current industry momentum is driven by a four-fold convergence: surging demand, constrained supply, rapid technological iteration, and accelerated domestic substitution. These dynamics are expected to shape the sector's trajectory in the coming period.
The report underscores that this year's expo will spotlight architectural changes that push value toward upstream core components. With data center markets having replaced traditional telecom infrastructure as the primary industry driver, the key shift at this event is how expanding computing cluster scale is forcing optical interconnect systems to evolve from single-point link upgrades to system-level optical network coordination. Unlike previous events that focused narrowly on linear improvements in optical module port speeds, this year's gathering delves deeper into the restructuring of underlying interconnect architectures.
As AI clusters with tens of thousands of graphics processing units impose stringent requirements on cross-cabinet traffic scheduling, ultra-low latency, and network energy efficiency, near-package optics are accelerating the movement of optical engines closer to switch chips to shorten high-speed electrical connection distances. Meanwhile, co-packaged optics and optical circuit switching architectures are undergoing engineering validation and customer adoption, making them central points of interest. This transformation signals that optical communications technology evolution has entered deep waters, with industry value shifting rapidly from traditional module packaging toward upstream core devices.
The report also highlights three notable changes in the current industry landscape. First, speed evolution is exceeding expectations, with 1.6T optical modules entering their first commercial year and beginning volume shipments. Cutting-edge solutions like single-wavelength 400G and 3.2T/6.4T options are making frequent appearances, and combined 800G and 1.6T market scales are expected to capture a significant share of the overall market. Second, interconnect architectures are accelerating toward optoelectronic integration to address power consumption and signal integrity bottlenecks at higher speeds, with NPO solutions pushing optical engines closer to switch chips and CPO technology progressing from laboratory validation to small-batch delivery. Third, the value of upstream core components is becoming increasingly prominent, with active chips like distributed feedback lasers and electro-absorption modulated lasers, along with precision coupling assemblies, gaining importance. Domestic optical chip self-sufficiency is accelerating as a result.
Regarding market fundamentals, China Galaxy Securities points out that the four major North American cloud providers have revised their 2026 capital expenditure guidance upward to more than $740 billion. Cloud business revenue and backlog figures have also exceeded expectations, establishing robust long-term demand certainty for the optical communications sector through a closed-loop AI investment returns framework. On the supply side, the industry faces severe structural shortages, with upstream core materials experiencing significant supply-demand gaps and prolonged capacity expansion cycles.
In terms of product form factors, with major players like NVIDIA announcing that CPO has entered mass production delivery, optical communications architecture is accelerating its shift toward NPO/CPO optoelectronic co-packaging formats. This transition is moving the value chain's focus from traditional module assembly toward higher-barrier upstream segments, including optical engines, silicon photonics chips, and precision coupling devices. On the domestic substitution front, Chinese optical chip companies are at a critical inflection point, transitioning from validation to full-scale deployment, with leading firms already achieving batch shipments in EML chips and high-power laser chips, suggesting the substitution process will likely accelerate further.
The report recommends attention to optical communications players including Zhongji Innolight, Eoptolink Technology, Accelink Technologies, HGTECH, LINKtel Technologies, and Cambridge Industries Group. Upstream suppliers of note include Tongguang Communication, Yuanjie Semiconductor, Everlight Chemical, Shijia Photons, Yongding Co, Juguang Technology, Tengjing Technology, T&S Communications, Hengdong Light, and Zhishang Technology. In the domestic computing power segment, the brokerage flags Ruijie Networks, Centec Networks, Gongjin Electronics, Feiling Kesi, Range Technology, RunJian Communications, Atlas Technologies, Dawei Technology, Dongyang Guang, Bizconf Telecom, and Sinnet Technology. Among operators, China Mobile, China Unicom, and China Telecom are also cited.
The report concludes with risk warnings, including the possibility that artificial intelligence development may proceed slower than expected, application adoption could underperform projections, and geopolitical factors might impact the industry adversely.