China Galaxy Securities has released a research report stating that the valuation of the communication sector has not yet fully reflected its high growth potential, and a sustained bull market is anticipated.
The influence of token economics may deepen, with leading players in high-growth segments solidifying their dominance through advantages in capacity, technology, and customer base, while undervalued segments present a window for recovery.
Looking ahead to the second half of 2026, the communication industry is transitioning from "point breakthroughs" to "chain self-reliance," focusing on deep industrial integration.
Against the backdrop of token economics profoundly reshaping the production function in the AI era, sector prosperity is expected to rise further.
The firm recommends a deep dive into the optical communication industry chain and advises paying attention to policy-led directions such as AIDC and 6G.
Review of the Communication Industry in H1 2026
Communication led the market in gains, with optical modules, optical devices, and optical chips demonstrating strong earnings delivery.
From January to May 2026, the A-share SW Communication Industry Index rose by 55.9%, ranking first among all sectors.
Driven by AI computing power, the top three gainers were optical fiber & cable & copper connections (+155.6%), optical modules & optical devices & optical chips (+87.6%), and IDC & computing power leasing (+40.8%).
The increased penetration of agents, represented by OpenClaw, has led to a significant surge in token consumption, triggering inflation across the entire AI industry chain.
Some high-priced stocks have maintained high trading activity.
In Q1 2026, public funds' heavy allocation to the A-share SW communication sector reached 13.1%, representing an overweight position of 7.2%, both hitting record highs since 2016.
The firm believes the sector's valuation has not yet fully priced in its high growth, and the long-term bull trend is likely to persist.
Outlook for the Communication Industry in H2 2026
The impact of token economics may intensify.
In high-growth directions, advantages in capacity, technology, and customers solidify the "strong get stronger" landscape, while undervalued segments face a recovery window.
Looking at the second half of 2026, the industry is shifting from isolated breakthroughs to integrated, self-reliant chains, concentrating on deep industrial convergence.
With token economics fundamentally reshaping AI-era production functions, industry prosperity is set to climb further.
Major global CSPs' capital expenditures have exceeded expectations.
Furthermore, the formation of commercial closed loops and competition for traffic gateways are expected to drive significant incremental growth over the next five years.
At the hardware level, technological iterations and solution optimizations are emerging continuously.
Leading enterprises can leverage capacity advantages to achieve higher-dimensional economies of scale and scope, use technological advantages to improve yields and reduce production costs while smoothing volatility from technological path changes, and utilize customer advantages to secure industrial-scale positions and enhance order visibility, making the dominance of strong players difficult to challenge in the near term.
Deep Dive into Optical Communication, Focus on Policy-Led AIDC and 6G
(1) Telecom Operators: Characterized by low valuation and high dividends, they maintain steady traditional operations, driven by both telecom and data communication.
Token-based plans enhance consumer (To C) stickiness, the impact of VAT rate adjustments is gradually being absorbed, and ARPU is poised for a new phase of growth.
(2) Optical Communication: This is the most elastic segment in the AI arms race, with high technical barriers creating a moat.
Shortages persist for some upstream materials, amplifying the benefits of domestic substitution.
Under the "non-blocking direct connection" architecture of AIDC, fiber consumption is expected to grow 5 to 10 times.
Domestic manufacturers are actively expanding overseas, and under supply constraints, simultaneous increases in volume and price may continue.
(3) AIDC: Domestic computing power is gradually scaling up, alleviating the "chip shortage" issue.
The ramp-up cycle for AIDC is relatively short, and utilization rates are expected to bottom out and recover.
The integration of computing and power opens multi-dimensional cost reduction paths, with leasing prices remaining at relatively high levels.
(4) 6G: Pilot projects by the Ministry of Industry and Information Technology are imminent.
Competition is already underway in self-innovative technical solutions, new business application scenarios, and terminal products.
The scarcity of low-earth orbit frequency resources for satellite internet is increasing, and space-based computing power is expanding boundaries.
Risk Warnings
Risks include fluctuations in overseas industrial and trade policies; slower-than-expected development of AI applications; potential declines in capital expenditure by major CSPs; and risks associated with changes in optical communication technology paths.
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