A report from Guotai Haitong Securities highlights that AAOI's financial results met expectations, with production capacity guidance revised upward once again. The commercialization of scale-up optical interconnect technologies like CPO and NPO is officially entering a deployment cycle, unlocking a new incremental market for the industry. This is expected to drive an upward trend in the value contribution of optical interconnects within AI computing clusters, making 2026 a critical inflection point for the sector.
From 2023 to 2025, industry demand was primarily driven by scale-out expansion and transmission rate iterations. Looking ahead to 2026, the scale-out scenario is expected to maintain strong growth. The fact that upstream manufacturers are ramping up production capacity and leading companies are securing large-scale, long-term orders fully validates the high certainty of mid-to-long-term demand. Concurrently, scale-up optical interconnect technologies, including CPO and NPO, are entering their commercial deployment phase, creating a new incremental market. As a result, the value weight of optical interconnects in AI computing clusters is expected to continue rising. The year 2026 is thus seen as a major inflection point: mature products will achieve volume deployment in existing scenarios, while cutting-edge technologies like CPO and NPO will simultaneously move into mass production. This dual-driver dynamic will create a growth dividend for the industry, with recommendations to focus on high-barrier niche segments and leading industry players.
The upward trend in the value share of optical interconnects per cluster is a long-term, irreversible trend. The core drivers are not product price increases but continuous bandwidth upgrades and the broadening of computing application scenarios, ensuring the industry's long-term sustainability. The report outlines three main investment strategies: First, prioritize core leaders with strong technical barriers and high earnings certainty, such as Zhongji Innolight and its supply chain. Second, seize opportunities in the domestic substitution of upstream core materials, focusing on the growth potential of domestic manufacturers in areas like optical chips, mSAP, optical fiber, isolators, and MPO connectors. Third, invest in new technology and application tracks that are in the early stages of industrialization, covering NPO/CPO co-packaged optics, Data Center Interconnect (DCI), and similar directions.
AAOI's results were in line with expectations, and its capacity guidance was revised upward again. For the second quarter of 2026, it reported revenue of $191.9 million (up 27.0% quarter-over-quarter and 86.4% year-over-year, against a previous guidance of $180–$198 million). GAAP gross margin was 27.7%, while Non-GAAP gross margin was 29.8% (against guidance of 29%–30%). For the third quarter of 2026, total revenue is guided at $255–$290 million (midpoint of $273 million), representing 32.9% to 51.1% growth. The data center business is expected to see a large-scale ramp-up of 800G products. The CATV business is projected to grow steadily, reaching $75–$80 million, while telecom and other businesses will remain a low share. Non-GAAP gross margin is guided at 29.0%–30.5%, with a midpoint of 29.75%, and Non-GAAP net income is projected at $10.1–$24 million. By mid-2027, monthly revenue from 100G/400G optical modules is expected to exceed $90 million, 800G revenue to surpass $217 million, and 1.6T revenue to exceed $164 million. The overall data center business is projected to reach $471 million per month, revised up from the first-quarter estimate of $378 million per month, implying an annualized output value of $5.688 billion.
Industry positioning ratios have increased, with valuations now at the upper end of historical averages, reflecting the positive outlook driven by the AI industry chain. AI-driven network upgrades are generating strong overseas demand, and core domestic companies are well-positioned to benefit from the global infrastructure boom. The launch of a new generation of domestic computing infrastructure is also ushering in a new cycle for the fully domestic industrial chain. New connections are expected to reach a development singularity in 2026, creating more investment opportunities as network upgrades driven by AI large model training and applications enhance communication capacity needs, rapidly advancing network innovation and new technology adoption.
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