According to the latest research by TrendForce, as data centers evolve toward large-scale clustering, high-speed interconnect technology has become critical in determining the efficiency and scalability of AI data centers. Global demand for 800G+ optical transceiver modules is projected to reach 24 million units in 2025 and surge to nearly 63 million units by 2026—a 2.6-fold increase.
TrendForce highlights that the massive demand for high-speed 800G+ optical transceivers has created a severe supply bottleneck at the upstream laser source level. Notably, NVIDIA (NVDA.US) has strategically monopolized production capacity from EML (Electro-Absorption Modulated Laser) chip suppliers, pushing delivery timelines beyond 2027 and exacerbating shortages in the laser source market. Optical module manufacturers and cloud service providers (CSPs), constrained by these shortages, are actively seeking alternative suppliers and solutions, reshaping the laser industry landscape.
NVIDIA’s dominance in EML lasers—primarily used in short-range VCSEL (Vertical-Cavity Surface-Emitting Laser) applications—has intensified competition. For medium-to-long-range optical modules, two laser types dominate: EML and CW (Continuous Wave) lasers. EML lasers integrate signal modulation within a single chip, requiring highly complex optical components and limiting global suppliers to a handful, including Lumentum, Coherent (Finisar), Mitsubishi, Sumitomo, and Broadcom.
With hyperscale data centers demanding ultra-long transmission distances, EML lasers—known for superior signal stability—have become a strategic resource. NVIDIA’s delayed rollout of silicon photonics/CPO (Co-Packaged Optics) solutions has further forced reliance on pluggable optical modules to meet GPU cluster demands, prompting NVIDIA to secure EML production capacity and tighten market supply.
**CW Lasers: The Rising Alternative** In contrast, CW lasers provide a constant light source and rely on silicon photonics chips (fabricated by semiconductor foundries) as external modulators to convert electrical signals into optical signals. Their simpler design, devoid of integrated modulation, has made CW lasers a preferred alternative for CSPs amid EML shortages.
While CW laser suppliers are more numerous than EML providers, production capacity remains constrained by equipment lead times, limiting rapid expansion. To meet reliability requirements, back-end processes like chip dicing and testing also strain resources, pushing laser manufacturers to outsource these steps and further tightening supply chains.
**High-Speed PD Demand Surges** Beyond lasers, optical transceivers require photodiodes (PDs) as receiving components. To match high-speed laser transmission, PD suppliers like Coherent, Macom, Broadcom, and Lumentum are developing 200G-capable PDs. Both high-speed PDs and EML/CW lasers rely on InP (Indium Phosphide) substrates, but laser source shortages have forced manufacturers to prioritize laser production, outsourcing InP epitaxy to specialized foundries like iET-IntelliEPI and VPEC.
TrendForce notes that AI-driven demand is not only straining memory supply but also fueling shortages in high-speed transmission components. NVIDIA’s EML monopoly, while securing its own supply, has inadvertently accelerated adoption of CW lasers and silicon photonics among non-NVIDIA players. This capacity battle is reshaping supply chains, creating growth opportunities for advanced compound semiconductor epitaxy and process technologies.
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