The optical module concept stocks known as the "Yi Zhong Tian" trio released their third-quarter reports, and even though all three companies are still posting year-on-year earnings growth in the latest quarter, the capital market is not buying it.
As of 2:30 p.m. on October 30, Zhongji Innolight (300308.SZ) fell 3.46%, Eoptolink Technology (300502.SZ) dropped 11.6%, and T&S Communications (300394.SZ) declined 5.8%. T&S Communications, which was the first among the three to report results, had already plunged 19.77% on October 29. The sharp pullback from this year's mid-year share price peaks reflects both market skepticism about whether data center construction can recoup its costs and lingering anxiety over the overlapping evolution of optical interconnect pathways.
Net profit growth is decelerating
In the first half of this year, these three star performers in the optical module sector collectively earned 22.3 billion yuan in net profit. In the third quarter alone, they earned more than half of that first-half total.
Zhongji Innolight reported third-quarter revenue of 27.769 billion yuan, up 171.83% year-on-year, with net profit of 8.587 billion yuan, up 173.74% year-on-year. Eoptolink Technology posted third-quarter revenue of 10.94 billion yuan, up 80.30% year-on-year, with net profit of 3.843 billion yuan, up 61.15% year-on-year. T&S Communications recorded revenue of 1.923 billion yuan, up 31.5% year-on-year, with net profit of 879 million yuan, up 55.3% year-on-year.
For the first three quarters, Zhongji Innolight's revenue reached 69.547 billion yuan, up 178.13% year-on-year, with net profit of 22.238 billion yuan, up 211.81% year-on-year. Eoptolink Technology's revenue totaled 31.85 billion yuan, up 92.97% year-on-year, with net profit of 11.372 billion yuan, up 79.74% year-on-year. T&S Communications had revenue of 4.751 billion yuan, up 21.25% year-on-year, with net profit of 2.083 billion yuan, up 42.18% year-on-year.
In other words, the three companies' combined net profit reached 13.3 billion yuan in the third quarter and 35.6 billion yuan for the first three quarters. Their combined revenue for the first three quarters totaled 106.1 billion yuan.
On a quarter-over-quarter basis, however, the three companies' third-quarter performance was uneven. T&S Communications saw its second-quarter revenue and net profit grow 12.6% and 44.7% quarter-over-quarter respectively, while in the third quarter those figures were 28.4% and 23.5%. Zhongji Innolight's second-quarter revenue and net profit grew 14.3% and 38% quarter-over-quarter respectively, while in the third quarter they were 24.6% and 8.5%. In other words, T&S Communications and Zhongji Innolight saw their quarter-over-quarter revenue growth accelerate in the third quarter, but their quarter-over-quarter net profit growth both slowed.
Eoptolink Technology, meanwhile, saw both revenue and net profit shift from quarter-over-quarter growth to quarter-over-quarter declines, falling 13% and 19% respectively in the third quarter.
All three companies are still stocking up for new orders and have made larger prepayments to their supply chains for this purpose. As of the end of September, Zhongji Innolight's inventory reached 23.88 billion yuan and its prepayments reached 1.57 billion yuan, up 88.3% and 1,068.43% respectively compared with the end of last year, due to an increase in orders on hand, corresponding material preparation, and locking in raw materials with suppliers. Eoptolink Technology's inventory reached 17.41 billion yuan and its prepayments reached 1.32 billion yuan, up 140.70% and 7,695.01% respectively compared with the end of last year. T&S Communications' inventory reached 1.27 billion yuan and its prepayments reached 92.18 million yuan, up 178.65% and 343.75% respectively compared with the end of last year.
Apart from Zhongji Innolight, which completed a Hong Kong listing in the third quarter, the other two companies saw their cash on hand at the end of September decrease compared with the end of last year. Eoptolink Technology also saw its net cash flow from operating activities decline 68.42% year-on-year in the third quarter due to payments for materials and other items.
It is not hard to see that all three optical module makers are still betting heavily on continued demand growth, even at the expense of affecting some cash-flow-related financial metrics. As of the end of September, the three companies' total inventory reached 42.5 billion yuan, exceeding their combined third-quarter revenue of 40.6 billion yuan. How this inventory is converted into revenue has become a critical factor affecting future performance.
But not stockpiling is not an option either. Late at night on October 29, Zhongji Innolight and Eoptolink Technology updated their investor communication activity records, both from conference calls, and Eoptolink Technology also disclosed the content of institutional visits that day. Zhongji Innolight and Eoptolink Technology gave key responses regarding inventory and raw material issues.
Zhongji Innolight said that a relatively large portion of its inventory is raw material preparation for subsequent orders. Eoptolink Technology said that about half of its quarter-over-quarter inventory increase consists of finished goods, and that the company is actively preparing inventory, raw materials, and semi-finished products for fourth-quarter and next-year order deliveries.
Tight raw material supply has become the backdrop for optical module makers spending considerable funds to lock in supplies in advance. In the short to medium term, this constraint will persist as optical module makers seek to quickly capture market demand. An industry analyst told reporters that domestic optical module makers face multiple challenges in sourcing materials for capacity expansion, including DSP chips, PCB substrates, and related equipment and compounds, all of which have varying degrees of supply bottlenecks.
Eoptolink Technology acknowledged during its conference call that raw material supply has been generally tight this year and that the stocking cycle for core raw materials has lengthened. Zhongji Innolight said that supply of some core materials is tight to varying degrees, and that the company has arranged key materials in advance through early stocking, long-term agreements, prepayments, and introducing new suppliers, while key material DSP chips remain in tight supply with firm prices, which the company is still adapting to.
The capital market is not buying it
Pre-stocking raw materials and finished goods inventory is meant to address growing demand. Optical module makers expressed confidence in future demand growth during their communications. Zhongji Innolight said that major customer orders basically cover all of 2027, with no order cuts or downward revisions to demand guidance observed, and that based on demand guidance from some key customers, the industry is expected to be highly prosperous in 2028. Eoptolink Technology said that this year's order deliveries are concentrated in the second half, especially the fourth quarter, and that fourth-quarter capacity and output are expected to grow significantly quarter-over-quarter.
However, actual share price movements stand in sharp contrast to the confidence expressed by optical module makers. From the late-June share price peaks to the October 29 close, over nearly four months, Eoptolink Technology's shares fell 62.37% cumulatively, Zhongji Innolight fell 57.83%, and T&S Communications fell 54.35%, with all three experiencing share price halvings and a combined market value decline exceeding 1 trillion yuan.
The capital market is highly sensitive to the long-term outlook for the optical module industry. It is hard to ignore the growing voices recently about a slowdown in data center construction. If AI investment fails to generate enough revenue to cover computing costs, the data center construction wave will be difficult to sustain long-term, and the deep ties between several domestic optical module makers and overseas data center customers will inevitably come under investor scrutiny.
According to a report published by market research firm Gartner, AI providers are expected to spend nearly 1 trillion US dollars on AI infrastructure in 2026, with another 6 trillion US dollars expected to be invested between 2027 and 2030, but AI revenue from enterprises and consumers is expected to be insufficient to support adequate profitable returns. The firm believes that by the end of 2030, more than 3.5 trillion US dollars in AI infrastructure spending could face impairment risk, and more than 80% of new cloud service providers will cease independent operations.
In addition, some industry figures are also discussing how financing could become a bottleneck for AI expansion. While the "Yi Zhong Tian" trio's share prices have weakened, several US AI computing power stocks have also been fluctuating recently. From October 8 to 29, NVIDIA (NVDA.O) fell 10.03% cumulatively, Broadcom (AVGO.O) fell 8.37%, Intel (INTC.O) fell 18.61%, and AMD (AMD.O) fell 12.5%, while AI cloud computing company CoreWeave (CRWV.O) fell 31.33% cumulatively. Google, once favored by the market for its full-stack AI logic, also plunged 12.64% on October 29 after releasing an earnings report that fell short of expectations.
Beyond demand-side concerns, the evolution of optical connectivity solutions is also fraught with undercurrents. Whether the optical module makers currently at the center of the optical interconnect supply chain can maintain their advantageous position in the future remains uncertain. The industry is evolving from pluggable optical modules toward NPO and CPO (near-packaged optics and co-packaged optics) solutions.
Zhongji Innolight said during its conference call that NPO and other new products are expected to gradually ramp up in the second half of 2027, and that the company is well positioned in NPO development and confident in maintaining its advantage. Eoptolink Technology said its NPO progress is smooth, with products expected to ship in volume in 2027.
But as an upstream supplier to optical module makers, T&S Communications acknowledged that NPO-leading manufacturers are relatively diverse, and that the market share its NPO-supporting products can capture mainly depends on product cost-effectiveness, supply assurance capability, and the industry's phased supply landscape. NPO is still a type of product that extends from the traditional pluggable optical module supply chain. The CPO supply chain, by contrast, differs more significantly from the traditional pluggable optical module supply chain, with higher integration, led by top AI infrastructure manufacturers such as NVIDIA, and the industry believes few suppliers will be capable of making CPO in the future.
In the long run, it is still uncertain what position current optical module makers can occupy. "The industry consensus is that multiple optical interconnect pathways will run in parallel in the future, and North American customers are also pursuing these pathways—it is not only Chinese manufacturers chasing NPO and other interconnect methods," said Yu Jia, head of China technology research at UBS Securities, during an exchange with reporters and other media.
At present, it is still difficult to judge which pathway will be the ultimate sole solution.
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