The U.S. optical communications leader Lumentum has indicated that demand from tech giants for its optical components is accelerating rapidly, with the company expected to sell out its production capacity through 2028 in the near future, further validating the sector's robust growth.
In the A-share market, on April 14, Zhongji Innolight Co.,Ltd. and Eoptolink Technology Inc.,Ltd. hit new all-time highs during trading. The ChiNext Artificial Intelligence ETF HuaBao (159363), which holds significant positions in leading optical module companies, reached a new intraday high with a 3% gain, attracting over 100 million additional units in capital inflows.
The optical communications industry is experiencing an unprecedented surge in demand. Michael Hurlston, CEO of U.S. optical communications leader Lumentum, recently revealed that demand from tech giants for the company's optical components is accelerating. He projected that within the next two quarters, Lumentum’s production capacity through 2028 will be completely sold out. This trend is primarily driven by substantial capital expenditures from multiple U.S. hyperscale cloud providers, with no signs of slowing down.
The industry’s strong growth momentum persists even amid geopolitical tensions in the Middle East affecting oil markets and the global economy, as demand for data center equipment remains high. As a leading player, Lumentum has expanded its Japanese plant capacity by 12 times over the past two years, yet it still struggles to meet rising demand. The company plans to invest an additional $250 million to further expand production.
This supply-demand imbalance is expected to continue long-term. Hurlston stated that the current industry cycle is likely to sustain strong growth for at least another five years, with non-cancelable order agreements already in place reinforcing the sector’s positive outlook. This surge in demand has also heightened market focus on related segments of the industry chain, including AI servers and data center liquid cooling technologies.
Recently, Lumentum’s CEO Michael Hurlston noted that demand from tech giants for the company’s optical components is accelerating, and production capacity will remain tight through 2028. This statement underscores the ongoing strength in the optical interconnect sector, particularly the explosive growth in demand for optical devices from hyperscale data center customers in North America. Lumentum is rapidly expanding production, including a $100 million investment in Japan and scaling up manufacturing in the U.S., to meet robust market demand.
Additionally, NVIDIA and Lumentum have entered into several multi-year strategic agreements involving billions of dollars in purchase commitments and future capacity rights for advanced laser components. NVIDIA will also invest $2 billion to support Lumentum’s new U.S. factory construction. The tight capacity not only reflects strong downstream demand for optical interconnects but also presents domestic optical chip manufacturers with opportunities for import substitution. For instance, Yuanjie Technology has launched high-speed EML and high-power laser products that compete with overseas counterparts. Optical chip supply has become a bottleneck for North American optical communications firms, while the domestic supply chain offers fully localized delivery advantages. Increasing adoption of silicon photonics is expected to accelerate the volume production of domestically produced CW silicon photonic light source chips.
Benefiting from sustained capital expenditure growth in North American hyperscale data centers and the explosive global demand for AI computing power, the optical communications industry is entering an unprecedented period of high demand.
As a global leader, Lumentum has sold out its production capacity through 2028, reflecting strong and persistent downstream demand for optical interconnects. The company is accelerating expansion in both the U.S. and Japan to address supply shortages. NVIDIA’s multi-billion-dollar strategic cooperation with Lumentum, which includes significant purchase commitments and a $2 billion investment in local capacity expansion, highlights the critical role of optical communications technology in AI infrastructure.
Tight supply of optical chips overseas also creates substitution opportunities for domestic manufacturers. Companies like Yuanjie Technology have launched high-speed EML laser chips that rival advanced international products, breaking foreign monopolies and actively expanding into overseas markets. With accelerating demand for 800G and 1.6T optical modules, the optical communications industry chain is set to benefit from technological upgrades and capacity expansion. The sector’s strong growth is expected to last for at least five years, providing long-term growth certainty for related companies.
As AI transitions from training to multimodal applications, computing power demand is growing non-linearly. Optical modules, as core infrastructure for global computing power, are supported by both strong earnings and firm orders. The ChiNext Artificial Intelligence ETF HuaBao (159363) and its off-exchange counterparts (Class A 023407, Class C 023408) allocate approximately 70% of their portfolio to computing power (including optical module/CPO leaders) and about 30% to AI applications, positioning the fund as both a core computing power and AI application representative.
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