Investment enthusiasm for AI infrastructure continues to intensify, and as computing power systems evolve towards higher-speed interconnections, the optical module industry is entering a new window for technological advancement.
Goldman Sachs released a new research report, significantly raising its 12-month price target for Zhongji Innolight Co.,Ltd. (ASX: 300308) from 1187 yuan to 2581 yuan, while maintaining a "Buy" rating. Concurrently, the firm increased its net profit forecasts for the company for 2026-2028 by 65%, 108%, and 119% respectively.
Goldman Sachs believes that the continuous upgrade of NVIDIA's (ASX: NVDA) new-generation AI servers is accelerating the data center network transition from 800G towards 1.6T and laying the groundwork for 3.2T deployment, propelling the global high-speed optical module market into a new expansion cycle.
With its leading silicon photonics technology, position as the world's largest optical interconnect solutions provider, and expanding production capacity, Zhongji Innolight is poised to be a core beneficiary of this wave of AI network infrastructure upgrades, further solidifying its global leadership position.
Key Drivers Behind the Revised Forecasts
The most significant changes in the report stem from earnings projections.
Goldman Sachs raised its revenue forecasts for Zhongji Innolight for 2026-2028 by 57%, 100%, and 118% respectively, corresponding to revenues reaching 123.6 billion yuan, 249.6 billion yuan, and 334 billion yuan. Net profit forecasts for the same period were increased by 65%, 108%, and 119%.
The firm attributes these adjustments to three primary factors: AI infrastructure investment continuing to exceed expectations, driving rapid growth in demand for high-speed optical modules; the company's capacity expansion progressing significantly faster than previously anticipated, with overall capacity expected to more than double by 2026; and the company's entry into new growth markets beyond traditional pluggable modules, such as optical engines, NPO/CPO, and OCS optical switches.
Furthermore, with the increasing proportion of silicon photonics products and the release of scale effects, the company's gross margin is projected to improve from 42% in 2025 to 50% by 2028, with net margin rising to 33%.
AI Server Evolution Drives Rapid Advancement to 3.2T
Goldman Sachs assesses that the global optical module market is entering a new technological upgrade cycle.
The report forecasts the global optical module market size to grow from $34.2 billion in 2025 to $50.9 billion in 2026 and $72.6 billion in 2027, remaining at a high level of approximately $69.1 billion in 2028. The real growth driver is expected to come from high-speed products above 800G.
Specific shipment projections include: 800G modules reaching approximately 34.18 million units in 2026 and 44.99 million in 2027; 1.6T modules reaching 25.5 million units in 2026 and rapidly jumping to 45.72 million in 2027 to become the mainstream; and 3.2T modules entering the volume shipment phase in 2027 with 13.07 million units, further growing to 28.16 million units in 2028.
The core force driving this upgrade is NVIDIA's AI server roadmap. Goldman Sachs expects the number of global AI server racks to grow from about 55,000 in 2026 to 105,000 in 2027 and 163,000 in 2028. As GB200 adopts a 400G+800G network architecture, GB300 upgrades to 800G+1.6T, and the next-generation Rubin and Rubin Ultra advance further towards 1.6T and 3.2T, demand for high-speed optical modules will continue to rise.
Silicon Photonics Adoption Surges, Building a Moat for Leaders
Compared to the previous product upgrade cycle, Goldman Sachs sees a more significant change in the technological pathway this time.
The report estimates that by 2026, silicon photonics (SiPh) penetration rates will reach 60%, 80%, and 100% in 800G, 1.6T, and 3.2T products, respectively. Within the entire optical module industry, the revenue share of SiPh products is projected to increase from 28% in 2025 to 62% by 2028.
Goldman Sachs notes that silicon photonics offers superior power efficiency and performance, reduces packaging complexity, improves supply chain flexibility, and effectively lowers costs, leading to its rapid replacement of traditional EML solutions in high-speed products. Zhongji Innolight is highlighted as one of the earliest global manufacturers to achieve scaled commercialization of high-speed silicon photonics modules.
The company has already deployed next-generation technologies including coherent optical communication, LPO, LRO, XPO, and CPO/NPO, and has established a complete New Product Introduction (NPI) system to shorten the development-to-mass-production cycle.
Goldman Sachs believes that as core component supply tightens and industry technology barriers rise, it will become increasingly difficult for new entrants to replicate this advantage, potentially allowing leading players to further increase their market share.
Improving Profitability and Strengthening Financial Position
According to LightCounting and CIC statistics, Zhongji Innolight became the world's largest optical interconnect solutions provider in 2025, with a market share of 21.2%, maintaining leadership in multiple high-speed product segments including 400G, 800G, and 1.6T.
Goldman Sachs expects the company to not only achieve high revenue growth in the coming years but also see continuous improvement in profitability. The report forecasts the company's ROE to increase from 44% in 2025 to a range of 52%-61% from 2026 to 2028, with its capital return rate (CROCI) potentially reaching as high as 137.5%.
Although capital expenditure is expected to grow 155% year-on-year to 7.03 billion yuan in 2026 to support new capacity construction, free cash flow is projected to remain robust, reaching 8.5 billion yuan, 62.3 billion yuan, and 111.5 billion yuan from 2026 to 2028, respectively.
Simultaneously, the company is expected to maintain a net cash position, with cash and cash equivalents forecasted to grow from approximately 11 billion yuan in 2025 to 195.1 billion yuan by 2028. The cash conversion cycle is also anticipated to shorten from 122 days to 98 days.
Comments