On Friday (August 7th), the GEM AI Index continued its rebound, with AI application concept stock Chinese Online leading gains by nearly 7%, while memory leaders Longsys Electronics and Ingenic Semiconductor both rose over 5%. The Optical Module CPO leader surged during the session, with Tianfu Communication closing up over 2%, but Zhongji Innolight experienced a sudden plunge in late trading, closing down nearly 4% with a single-day volatility exceeding 10%.
In the popular ETF space, the GEM AI ETF Huabao (159363), which heavily weights optical module leaders, briefly surged nearly 3% in early trading. However, dragged down by the leader's afternoon slump, it briefly turned red before quickly recovering, ultimately closing up nearly 1% and achieving a fifth consecutive gain.
Why did Zhongji Innolight plunge?
Zhongji Innolight's afternoon sell-off may be linked to a specific piece of news. It was reported that U.S. optical module manufacturer AAOI (Applied Optoelectronics) revealed a large-scale expansion plan during its earnings report and conference call, sparking market concerns about the competitive landscape of the industry. On the conference call, AAOI stated its goal is to triple its monthly production capacity this year, requiring more automated equipment for expansion. The company plans to produce 650,000 units of 800G/1.6T products per month by year-end, with a goal to increase capacity by more than tenfold next year. This triggered fears that it could gradually capture market share from domestic manufacturers. Although some analysts noted that the short-term impact is limited and AAOI still relies on domestic leaders for technology, the negative rumor still triggered a decline in stock price.
Three core logics supporting the sector's medium-to-long-term outlook
From a broader perspective, three key factors underpin the medium-to-long-term prosperity of the optical module sector. First, capital expenditure upgrades confirm industry prosperity, and surging cloud revenue validates commercial deployment. CITIC Securities believes that as cloud companies' earnings continue to confirm AI's role in driving business growth, the scale of AI clusters will expand further. As a critical component of cluster networks, optical interconnection will experience sustained high growth driven by three factors: increased GPU allocation ratios, port speed upgrades, and the shift from copper to optical cables. The firm remains optimistic about the medium-to-long-term outlook for the optical communication sector. Second, optical interconnection investment continues to increase, and the mass production of CPO is accelerating cluster restructuring. A research report from Kaiyuan Securities highlights that Nvidia's Rubin Ultra architecture is shifting its focus to NVL576-level large-scale interconnection. The system form involves interconnecting eight 72-GPU racks, using NPO to achieve cross-rack connections. Additionally, CPO has entered mass production, with plans to be widely adopted in global AI factories later this year, which could accelerate the penetration of optical interconnection technology and drive a structural revaluation of the optical communication value chain. Third, the sector has undergone sufficient correction, with valuations now at depressed levels, and a clean-up of positions has laid a foundation for recovery. Guosheng Securities believes that the previously overcrowded trading structure in the optical module sector is improving, and short-term risks have been largely released. While sufficient turnover and rebalancing of positions in the bottoming zone will still take time, the market should wait for a gradual accumulation of positive catalysts and a recovery in market confidence.
Beyond optical modules, focus on AI applications
On the AI trading theme, in addition to AI computing power positions like optical modules, investors should also pay close attention to AI applications. Referencing the U.S. SaaS benchmark, Palantir's quarterly results exceeded expectations and surged, indicating that the market is assigning a premium to companies with the ability to deploy AI applications. The GEM AI index gathers a large number of companies with a combination of software and hardware, including industry-specific applications. Compared to pure hardware communication stocks, these companies may benefit more from a dual-driver logic of earnings delivery from the application layer and a revaluation of their valuation framework. The GEM AI ETF Huabao (159363) and its off-exchange feeder funds (Class A: 023407, Class C: 023408) focus on optical module CPO leaders while also incorporating AI application stocks. The underlying index has a combined weight of approximately 40% for Zhongji Innolight, Eoptolink Technology, and Tianfu Communication, making it a core holding for AI computing power. As of the latest data, the GEM AI ETF Huabao (159363) has a scale exceeding 7.4 billion yuan and an average daily trading volume of over 1 billion yuan in the past six months, leading the eight ETFs tracking the same index in both scale and liquidity. Data source: Shanghai and Shenzhen stock exchanges. *Institutional views referenced from: CITIC Securities, Kaiyuan Securities, and Guosheng Securities reports. ETF fund-related fees: Investors may be charged a commission of up to 0.5% by the subscription and redemption agent. On-exchange trading fees are subject to the actual charges of the securities company, with no sales service fee. Feeder fund fees: Class C shares have no subscription fee; redemption fee is 1.5% for holding period less than 7 days, 0% for 7 days or more; sales service fee is 0.3%. Class A shares: subscription fee is 1% for amounts under 1 million yuan, 0.6% for 1 million (inclusive) to 2 million yuan, and 1,000 yuan per order for 2 million yuan or more; redemption fee is 1.5% for holding period less than 7 days, 0% for 7 days or more; no sales service fee. Risk disclaimer: The GEM AI ETF Huabao passively tracks the GEM AI Index, which has a base date of 2018.12.28 and a release date of 2024.7.11. The index's annual returns for 2021-2025 were 17.57%, -34.52%, 47.83%, 38.44%, and 106.35%, respectively. The annualized volatility for the same period was 23.73%, 27.34%, 38.02%, 45.42%, and 41.1%. The index's constituent stocks are adjusted according to the index compilation rules. Historical backtest performance does not indicate future index performance. The constituent stocks mentioned in the article are for demonstration purposes only, and descriptions of individual stocks do not constitute any form of investment advice, nor do they represent the holdings or trading activities of any fund managed by the fund manager. Based on the fund manager's assessment, the GEM AI ETF Huabao has a risk rating of R4 (medium-high risk), suitable for investors with a C4 (aggressive) risk profile or above. The appropriateness assessment should be based on the sales institution's recommendation. Any information in this article (including but not limited to individual stocks, comments, forecasts, charts, indicators, theories, expressions, etc.) is for reference only. Investors must be responsible for their own investment decisions. Furthermore, any views, analyses, or forecasts in this article do not constitute investment advice to readers, and the author is not liable for any direct or indirect losses resulting from the use of this content. Fund investment carries risks. Past performance is not indicative of future results. The performance of other funds managed by the fund manager does not guarantee the performance of this fund. Investors should be cautious when investing in funds. MACD golden cross signal forms, these stocks are performing well!
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