TL;DR
• Citicorp expects the global light-connected market to reach $92 billion in 2028 and to raise the target price for new euphoria, precision and twilight communications。
800G MIGRATION TO 1.6T, 3.2T AND CPO/NPO IS PUSHING HIGH SPEED LIGHT MODULES, SILICON PHOTONS AND LASER CHIP REQUIREMENTS。
• China ' s light communications supply chain benefits most directly, but the availability, profitability and high valuation of laser chips still limit the speed of delivery。

Behind $92 billion: data centres take over light interconnection requirements

IN CITI’S 24 JUNE STUDY, THE AI LIGHT INTERCONNECTION MARKET FORECAST WAS REVISED UPWARDS, AND THE GLOBAL LIGHT INTERCONNECTIVITY MARKET IS EXPECTED TO REACH $92 BILLION IN 2028, WITH A COMPOUND INCREASE OF ABOUT 65 PER CENT BETWEEN 2025 AND 2028. IN THE SAME ROUND OF ADJUSTMENTS, THE TARGET PRICES OF CHINA GUANGCAI COMMUNICATIONS CORPORATION, SUCH AS SHIN FU, DONGSHAN AND TIANFU COMMUNICATIONS, WERE SIGNIFICANTLY INCREASED。

THE STARTING POINT FOR THIS JUDGEMENT IS NOT COMPLEX. THE LARGER THE AI DATA CENTRE, THE MORE DATA WILL NEED TO BE MOVED BETWEEN GPU AND ASIC, THE GREATER THE NEED FOR CONNECTIVITY BETWEEN CABINETS, SWITCHES AND SERVERS. THE HIGH-SPEED LIGHT MODULE, SILICON PHOTONS AND LASER CHIPS ARE NO LONGER ONLY A COMPLEMENT TO THE EXPANSION OF THE DATA CENTRE, BUT ARE A KEY LINK TO EFFICIENT COMPUTING。

CITIGROUP MODELS SHOW THAT THE AVERAGE PRICE OF LIGHT INTERCONNECTIONS FOR THE YEAR 2025 TO 2028 IS EXPECTED TO BE ABOUT 18 PER CENT OF THE COMPOUND INCREASE, DRIVEN MAINLY BY THE RISING SHARE OF HIGH-SPEED PRODUCTS SUCH AS 800G, 1.6T AND 3.2T。

THE SIZE OF THE GLOBAL LIGHT-CONNECTED MARKET ROSE TO $92 BILLION, AND ASP STABILIZED AFTER MAINTAINING 18 PER CENT CAGR IN 2025-2028。

AFTER 800G: 1.6T, 3.2T AND CPO/NPO RELAY

Ordinary investors need to understand a change first: this round is mainly driven by data centre interconnection rather than traditional telecommunications or business networks。

In the Citigroup Model, global light connection deliveries are expected to increase from 110 million units in 2025 to 300 million units in 2028, with a combined three-year increase of about 40 per cent. Data centre operations as a percentage of total deliveries will rise from 71 per cent in 2025 to 89 per cent in 2028。

PRODUCT SPECIFICATIONS ARE ALSO MOVING UP. THE PROPORTION OF HIGH-SPEED PRODUCTS ABOVE 800G IN DATA CENTRE LIGHT INTERCONNECTION IS PROJECTED TO RISE FROM 37 PER CENT IN 2025 TO 89 PER CENT IN 2028. THIS MEANS THAT THE INCREASE IS NOT JUST A “MULTI-BUY-OUT MODULE”, BUT AN ACCELERATED SUBSTITUTION OF LOW-SPEED PRODUCTS FOR HIGHER-SPECIFIED PRODUCTS。

800G IS STILL ONE OF THE MAIN FORCES IN RECENT YEARS, BUT 1.6T, 3.2T AND THE RENEWAL OF THE CONTAINMENT PROGRAMME ARE INCREASING AT A HIGHER RATE. UNDER THE BASE SCENARIO, THE COMBINED SPEED OF DELIVERY BETWEEN 2025 AND 2028 WAS 215%. 3.2T STARTED IN 2027 AND DELIVERED 4 MILLION UNITS IN 2027 AND ROSE TO 35 MILLION UNITS IN 2028。

CPO AND NPO ARE MORE BACKWARD TECHNOLOGY MIGRATIONS. IN THE BASE SCENARIO, CPO/NPO DELIVERED 18 MILLION UNITS AND 56 MILLION UNITS BY 2028. ON AN OPTIMISTIC NOTE, IN 2028 IT COULD RISE TO 33 MILLION AND 116 MILLION UNITS. THE TWO SCENARIOS VARY CONSIDERABLY, DEPENDING ON THE NEEDS OF CLOUD MANUFACTURERS, THE IMPROVEMENT OF GOOD RATES AND THE DOWNSWING OF PLATFORM STRUCTURES SUCH AS INGWEIDA AND GOOGLE。

THE NEED FOR HIGH-SPEED LIGHT INTERCONNECTIONS WAS CLEARLY DIVIDED AFTER 2027, WITH 1.6 T AND 3.2 T/CPO/NPO BEING THE MAIN SOURCE OF ELASTICITY BETWEEN THE BASELINE AND THE OPTIMISTIC SCENARIO

Silicon light up to 60%: Value moves up to laser chips and light engines

If $92 billion corresponds to market space, then Silicon Light and Laser Chip determine the distribution of this round of growth in the supply chain。

Citicorp predicts that the penetration of Silicon Photons in the high-speed light module will rise from 29 per cent in 2025 to 60 per cent in 2028. Under this scenario, the total demand for optical chips in 2028 was about 17.14 billion, and the compound rate of increase between 2025 and 2028 was about 62 per cent。

OF THESE, DEMAND FOR EML CHIPS IS EXPECTED TO REACH 718 MILLION, WITH A COMPOUND INCREASE OF ABOUT 34 PER CENT OVER THREE YEARS. CW LASER CHIPS ARE GROWING FASTER AND DEMAND IS EXPECTED TO REACH 987 MILLION IN 2028, WITH A COMBINED INCREASE OF APPROXIMATELY 114 PER CENT OVER THREE YEARS。

THIS IS ALSO THE REASON WHY SUPPLY CONSTRAINTS HAVE BEEN REPEATEDLY MENTIONED. AFTER THE HIGH-SPEED LIGHT MODULE IS DEPLOYED, BOTTLENECKS MAY NOT NECESSARILY OCCUR IN THE MODULE ASSEMBLY, BUT MAY ALSO OCCUR IN LASER CHIPS, ENCAPSULATION RATES AND UPSTREAM ENERGY LOCKING. PURE MODULAR MANUFACTURERS LOCK UP UPSTREAM SUPPLY THROUGH LTAS AND STRATEGIC INVESTMENTS AND ARE INHERENTLY AHEAD OF SCHEDULE FOR SUBSEQUENT RELEASES FOR 1.6T, 3.2T AND CPO/NPO。

SILICON PHOTOPERMEABILITY ROSE TO 60 PER CENT, OPTICAL CHIP REQUIREMENTS TO 2028E ABOUT 17.14 BILLION, CW LASER CHIPS TO 114 PER CENT。

Tungshan's fine, new, Zengfu's communications are up and downgraded

At the unit level, the most immediate changes have been in the areas of new euphoria, precision and twilight communications。

TUNGSHAN IS ONE OF THE MOST VISIBLE COMPANIES IN THE ROUND. CITICORP RAISED ITS TARGET PRICE FROM 225 TO 350 AND INCREASED ITS NET PROFIT PROJECTION FROM 2026 TO 2028. THE READING INDICATES THAT AI OPTICAL OPERATIONS ARE CONSIDERED TO BE THE MAIN INCREMENT AND ARE EXPECTED TO CONTRIBUTE SIGNIFICANTLY TO PROFITS IN THE COMING YEARS。

IN THE VALUATION, THE PRECISION OF TOSHIYAMA WAS BROKEN DOWN INTO TRADITIONAL OPERATIONS, LIGHT MODULES, LIGHT CHIPS AND AI PCB. THIS SPLIT SUGGESTS THAT WHEN MARKETS LOOK AT DONGSHAN ' S PRECISION, THEY LOOK NOT ONLY AT TRADITIONAL PCB OR ELECTRONIC MANUFACTURING OPERATIONS, BUT RATHER AT THEIR ABILITY TO REALIZE PROFITS FROM AI OPTICAL OPERATIONS。

THE TARGET PRICE FOR THE NEW EUPHORIA WAS RAISED FROM $353.57 TO $701, MAINLY FROM 3.2T TRANSCEIVERS AND NPOS. THE TARGET VALUE OF ZENGFU COMMUNICATIONS WAS RAISED FROM $318.57 TO $419, WITH THE BENEFITS CONCENTRATED ON CPO DEPLOYMENT AND 3.2T LIGHT ENGINES。

Tungshan's fine profit forecast is up

Fragmentation is also emerging. Tai Chi Light (300570.SZ) rating was moved from purchase down to sale and the target price was reduced from 156 to 152. Citigroup has revised its 2026 and 2027 EPS projections to take into account, inter alia, the risk of decoupling with Corning, increased competition in Asian supply chains and high valuation. According to the reported calibre, the current estimate for Tata Light is approximately 59 times the market rate for 2027, while the target price corresponds to 31.8 times the market rate for 2027。

THIS SET OF RATING CHANGES SUGGESTS THAT AI ' S LIGHT INTERCONNECTION NEEDS DO NOT ADD UP TO THE SIMULTANEOUS BENEFITS OF ALL INDUSTRIAL CHAIN COMPANIES. MARKETS ARE MORE FOCUSED ON HIGH-SPEED PRODUCT CAPABILITIES, THE LAYOUT OF SILICON PHOTONS AND LASER CHIPS, CUSTOMER STRUCTURE, SUPPLY CHAIN STABILITY, AND WHETHER CURRENT STOCK PRICES REFLECT GROWTH IN ADVANCE。

IT IS WORTH NOTING THAT THESE TARGET PRICES ARE STILL PART OF THE VOUCHER MODEL ASSUMPTIONS, NOT CORPORATE COMMITMENTS. FOR INVESTORS, THE HIGHER TARGET PRICE REFLECTS THE AGENCY ' S ABILITY TO RAISE AI LIGHT-CONNECTED DEMAND, PRODUCT UPGRADES AND CHINA ' S SUPPLY CHAIN SHARE TOGETHER, BUT IT REMAINS TO BE SEEN WHETHER ORDERS, DELIVERY AND PROFITABILITY WILL KEEP PACE。

Growth stories are stuck on laser chips, probabilities and valuations

THIS ROUND UP DOES NOT MEAN THAT AI LIGHT INTERCONNECTION HAS ENTERED RISK-FREE GROWTH。

THE FIRST CONSTRAINT IS SUPPLY. BOTH EML AND CW LASER CHIPS MAY BE NERVOUS, ESPECIALLY IN THE CASE OF A RAPID INCREASE IN SILICA PHOTOPERMEABILITY, 1.6T AND 3.2T ACCELERATOR DISCHARGE, WHERE UPSTREAM CAPACITY AND GOOD RATES CAN DIRECTLY INFLUENCE EVENTUAL DELIVERY. IF THE SUPPLY OF CRITICAL CHIPS FAILS TO KEEP PACE, ORDERS AND EXPECTATIONS MAY RISE FIRST, WHILE REVENUE RECOGNITION AWAITS THE PACE OF DELIVERY。

THE SECOND CONSTRAINT IS TECHNOLOGY LANDING. THE CPO/NPO IS CONSIDERED TO BE AN IMPORTANT INCREMENT AFTER 2027, BUT THE ABILITY OF THE NEW ARCHITECTURE TO BE MEASURED ON AN OPTIMISTIC BASIS DEPENDS ON THE CAPITAL EXPENDITURE OF THE CLOUD MANUFACTURER, THE SELECTION OF THE NETWORK STRUCTURE, THE RATE OF GOOD EQUIPMENT AND THE SPEED AT WHICH PLATFORM PROGRAMMES SUCH AS WEEDA AND GOOGLE ADVANCE. THE LARGE GAP BETWEEN THE UNDERLYING AND OPTIMISTIC SCENARIOS SUGGESTS THAT DELIVERIES OVER THE NEXT TWO YEARS ARE NOT LOCKED。

The third constraint is valuation. Tai Chi was moved from the flag to the sale for reasons including the risk of de-linking Konning and overvaluation. Photolytic technology was also maintained for sale, with the main pressure coming from valuations。

THE $92 BILLION MARKET FORECAST PUSHED AI LIGHT INTERCONNECTION TO THE STAGE, BUT STOCK PRICES ALREADY REFLECTED A NUMBER OF OPTIMISTIC EXPECTATIONS AHEAD OF SCHEDULE. WHAT REALLY OPENS THE GAP IS NOT JUST HOW MANY AI ORDERS ARE RECEIVED, BUT WHO CUTS INTO HIGHER PRODUCT GENERATIONS, LOCKS IN THE SUPPLY OF UPSTREAM LASER CHIPS AND CONVERTS THE RELEASE OF 1.6T, 3.2T AND CPO/NPO INTO SUSTAINABLE PROFITS。