The AI computing power race continues to intensify, ushering in a strategic period of opportunity for the optical communication industry chain.
Driven by sustained volume growth in demand for large model training and inference, data center network bandwidth is continuously being upgraded. Optical interconnect, serving as the "highway" for computing power systems, is transitioning from a traditional communications accessory to one of the core sectors with the highest growth certainty within AI infrastructure.
According to a recent report from Citigroup cited by financial media, the global optical interconnect market size is projected to grow from approximately $22 billion in 2025 to $92 billion in 2028, representing a three-year compound annual growth rate (CAGR) of 65%. The growth driver has shifted from traditional traffic cycles to a dual resonance of AI computing cluster expansion and the rising penetration of high-speed optical modules, moving the industry from "cyclical fluctuations" toward "structural expansion."
Eoptolink Technology Inc.,Ltd. (300502) is one of the most notable subjects of Citigroup's latest upgrades, with its price target being significantly raised from RMB 353.57 to RMB 701, nearly doubling. The core rationale is that the market is currently primarily pricing in the short-term boom for 800G and 1.6T products, while significant expectation gaps remain regarding future growth drivers such as volume shipments of 3.2T products and the commercialization of NPO optical engines. The continuous upgrade of the product portfolio is expected to further amplify profit elasticity.
Optical Interconnect Market CAGR Hits 65% Over Three Years with 3.2T and CPO/NPO Adoption
The Citigroup report forecasts that from 2025 to 2028, global optical interconnect shipments will increase from 110 million units to 300 million units, achieving a 40% CAGR. The market size is projected to leap from $22 billion to $92 billion, with a CAGR of 65%. The difference between volume and value growth stems from product portfolio upgrades—the increasing proportion of high-speed optical modules is raising the overall average selling price, allowing the industry to decisively move away from the past competitive model of relying on price cuts to gain market share in the communications equipment sector.
Data centers have become the absolute primary source of demand, with the proportion of optical module shipments expected to rise from 71% to 89% within three years. Bandwidth upgrades in AI computing clusters are the core driver. The penetration rate of 800G and higher-speed products in the data communications field is set to surge from 37% to 89%, with low-speed modules exiting the market more rapidly.
By data rate, 1.6T modules are expected to see significant volume growth starting in 2027, with a three-year CAGR reaching 215%. 3.2T modules will begin shipping in 2027 and ramp up quickly the following year, taking over as the next major growth engine. Concurrently, new packaging solutions like CPO/NPO will also see scaled adoption starting from 2027, with the NPO scheme precisely matching the lateral computing cluster architectures of companies like Google and Nvidia.
The upstream optical chip segment benefits in tandem. The penetration of silicon photonics technology is forecast to increase from 29% to 60%, driving high growth in demand for EML and CW laser chips. Due to their technological barriers and production capacity scarcity, optical chips represent the segment with the strongest certainty of benefit within the industry chain. Overall, the optical interconnect industry is transitioning from a communications accessory to computing power infrastructure, with a clear path for volume and price expansion over the next three years, potentially amplifying the first-mover advantages of leading companies.
Core of Eoptolink's Valuation Re-rating: Realization of Dual Growth from 3.2T and NPO
Citigroup's substantial price target increase for Eoptolink to RMB 701, nearly double the current share price, is primarily based on the view that the market is currently only pricing in the short-term boom for 800G and 1.6T products, while long-term increments from 3.2T volume deliveries and NPO optical engine adoption have not been fully accounted for. The company's global customer barriers and industry-leading profitability provide the fundamental support for this valuation uplift.
Regarding profit forecasts, Citigroup raised its net profit expectations for Eoptolink for 2026 and 2027 by 8% and 13% respectively. The main incremental contributions are expected from 3.2T product shipments and the gradual realization of NPO optical engine orders. Net profit for 2028 is further projected at RMB 65.828 billion, implying a three-year CAGR of 190%, as economies of scale and product portfolio upgrades continue to drive gross margin expansion.
On gross margin, the company is projected to maintain high levels of 52.9%, 53.9%, and 54.0% from 2026 to 2028, approximately 10 percentage points higher than its peers. Citigroup attributes this to its excellent cost control capabilities and deep partnerships with leading overseas cloud service providers, forming a moat that is difficult to replicate.
Valuation-wise, the RMB 701 target price corresponds to a 20x forward P/E ratio based on 2027 earnings, which is 0.5 standard deviations below the company's five-year historical average. Citigroup argues that the company deserves a growth premium above traditional communications equipment firms, given the continued strength in 800G and 1.6T demand coupled with the high certainty of future cash flows from 3.2T and NPO technologies.
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