Soochow Securities released a research report stating that AI giants like Google (GOOGL.US) and Alibaba (09988) have successfully established a commercial closed-loop spanning computing power investment, model training, and application monetization. To consolidate their competitive advantages, both companies plan to significantly increase capital expenditures, with optimistic investment expectations cascading down the supply chain. Against this backdrop, the computing infrastructure market remains far from saturation, and core segments such as optical modules/components will collectively benefit from this major technological upgrade, with related supply chain companies poised for substantial earnings support.
Key insights from Soochow Securities include:
**Global Perspective: Google’s New Investment Cycle Gains Attention** Google has recently launched multiple new products, including Gemini 3.0 Pro, Antigravity, and Nano Banana, in rapid succession. This reflects its ability to sustain computing power investment → train foundational large models → support AI applications → drive rapid token consumption → boost AI revenue, forming a positive feedback loop. Notably, Google’s vertically integrated advantage across computing power, models, and applications strengthens its competitiveness, potentially accelerating the clarity of AI business models and creating sustainable profitability, thereby enhancing market confidence in AI valuations.
**Domestic Focus: Alibaba’s Strong AI-Driven Growth** Alibaba reported its Q2 FY2026 earnings on November 25, with revenue reaching RMB 247.795 billion, up 5% YoY. Robust AI demand drove its Cloud Intelligence Group’s revenue growth to 34% YoY, exceeding market expectations. AI-related product revenue has now achieved triple-digit YoY growth for nine consecutive quarters. Additionally, its newly launched Qwen App surpassed 10 million downloads within a week of public testing, becoming the fastest-growing AI application to date. The company invested RMB 31.5 billion in capital expenditures this quarter, bringing its total AI and cloud infrastructure spending over the past four quarters to approximately RMB 120 billion. At its recent Yunxi Conference, Alibaba upgraded its full-stack AI ecosystem, including large models, intelligent agents, and infrastructure, further enhancing its competitiveness.
**New Technologies Reshape Optical Interconnect Investment Logic** Google and Alibaba’s full-stack AI capabilities enable them to develop specialized computing clusters with superior in-house R&D. As their computing investments translate into revenue growth, demand for TPUs and AI ASICs is expected to surge. Customized computing clusters also require advanced networking capabilities—Google’s TPUs introduce the OCS next-gen optical interconnect solution, while Alibaba’s Panjiu Super Nodes amplify ScaleUp networking needs, potentially driving adoption of CPO/NPO optical technologies to reduce latency. Both companies are ramping up AI infrastructure investments, with Google raising its 2025 capex guidance to $91–93 billion and Alibaba signaling further potential increases beyond its three-year RMB 380 billion capex plan. These optimistic spending outlooks are expected to generate tangible incremental demand for optical interconnect supply chains, bolstering sector performance.
**Diverse Computing Solutions Thrive Under AI Megatrend** Soochow Securities believes that in-house computing solutions developed by tech giants with full-stack AI capabilities and Nvidia’s GPU NVL solutions each excel in different scenarios. The AI megatrend ensures robust demand for computing power, with the infrastructure market still in a high-growth phase, far from zero-sum competition. The firm maintains a positive outlook on major computing solutions and recommends focusing on optical interconnect supply chain opportunities, including optical modules, CPO/NPO, OCS, and DCI technologies.
**Key Beneficiaries:** - Optical interconnect suppliers for Google and Alibaba, such as **Dekelight, Optowide, Focuslight, Gigalight, Accelink, and HG Tech**, which are deeply involved in next-gen tech supply chains. - Leading optical module/component providers like **Zhongji Innolight, Eoptolink, and TFC Optical**, set to benefit from strong computing interconnect demand. - Upstream optical chip/component firms with high earnings elasticity, such as **YJ Tech, Sicoya, Yongding, and TFC**.
**Risks:** Slower-than-expected AI industry progress and systemic risks.
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