China Galaxy Securities Co., Ltd. has released a research report indicating that the growth logic of the optical communications industry is evolving towards dual drivers of "volume and price increases" and "technology generation dividends." The upgrade of product structures is expected to drive a sustained rise in average selling prices, opening new growth avenues for leading companies. Simultaneously, the increasing penetration of silicon photonics technology is set to fuel rapid growth in demand for upstream optical chips.
The long-term certainty of computing power infrastructure development means that companies with high-end mass-production capabilities, deep ties to global top-tier clients, and mastery of core technologies are likely to be the primary beneficiaries. The key viewpoints from the report are outlined below.
Performance Exceeds Forecasts, AI Drives High-Speed Module Volume and CPO Trends
Overall performance is surpassing expectations. For the first half of 2026, Eoptolink Technology Inc., Ltd. is projected to achieve net profit attributable to shareholders of 7-8 billion yuan, representing a year-on-year increase of 77.569% to 102.93%. TFC Optical Communication is forecasted to achieve net profit of 1.124 to 1.304 billion yuan, a year-on-year rise of 25% to 45%.
On a quarterly basis, Eoptolink Technology Inc., Ltd. is expected to report net profit of 4.22 to 5.22 billion yuan for Q2 2026, marking a year-on-year increase of 78.10% to 120.3% and a sequential increase of 51.80% to 87.77%. TFC Optical Communication is projected to achieve net profit of 632 to 812 million yuan for Q2 2026, reflecting a year-on-year increase of 12.46% to 44.47% and a sequential increase of 28.47% to 65.02%.
Eoptolink Technology Inc., Ltd. benefits from the continuous growth in AI-related computing power investments and product structure optimization, leading to a significant anticipated increase in sales revenue and net profit compared to the same period last year. TFC Optical Communication gains from the accelerated global development of the AI industry and data center construction, driving sustained and stable growth in demand for high-speed optical device products. The performance of both companies has exceeded market expectations.
Surge in Computing Demand Spurs Structural Upgrades and Value Reassessment in Optical Modules
The optical communications industry is currently undergoing profound structural changes driven by the explosive demand for AI computing power. Industry vitality is shifting from traditional cyclical fluctuations towards a long-term expansion channel supported by the synergy of technological iteration and capital expenditure.
Major global cloud providers and AI enterprises are continuously raising their budgets for computing power infrastructure investment, directly fueling a non-linear surge in demand for high-speed optical modules. The report suggests that starting in 2026, the penetration rate of high-speed products in the data communications field is accelerating, with 1.6T products already entering the batch delivery cycle. This robust demand growth provides solid fundamental support for capacity release and profit realization across the industry chain.
As the certainty of high demand growth strengthens, capacity release has been improving quarter by quarter since the beginning of the year. While supply constraints for upstream raw materials persist, the report indicates that these constraints are expected to gradually ease with the deepening of processes like domestic substitution.
Demand Propels CPO Towards Commercialization, Core Components Set for Dual Growth
The commercial implementation of new packaging solutions like Co-Packaged Optics (CPO) and Near-Packaged Optics (NPO) is reshaping the value distribution within the industry chain. Traditional pluggable optical modules are nearing their physical limits in terms of power consumption and transmission density. In contrast, CPO technology, by co-packaging the optical engine with the switch processor, significantly reduces power consumption and increases bandwidth density, emerging as a key solution to address the Scale-up interconnect bottlenecks in AI computing clusters.
As top manufacturers like Nvidia enter full-scale production of CPO switches, the value proportion of core components such as optical engines, FAUs, and ELSs has increased significantly. The industry chain's focus is shifting from simple module assembly towards high-barrier, high-value-added core optical components. This shift grants companies with vertical integration capabilities in upstream core components stronger pricing power and resilience against cyclical fluctuations.
Companies to watch include optical module manufacturers such as Zhongji Innolight, Eoptolink Technology Inc., Ltd., Accelink Technologies, Huagong Tech, and Cambridge Industries Group. In optical chips, companies like Genew Technologies, Shijia Photons, and Chang Guanghua Core are notable. For optical devices, attention is on TFC Optical Communication, Focuslight Technologies, T&S Communications, and Longchip Boxchuang.
Risks to consider include changes in the international situation, potential underperformance in AI infrastructure construction, and risks associated with tight supply of upstream raw materials.
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