Yuanjie Technology hits the 20CM limit-up! The latest stock price is 1,140 yuan, surpassing Cambrian, and approaching Kweichow Moutai. Let's clarify once and for all: what are optical communication, optical modules, optical chips, and CPO?

Question to AI: How does the explosion of AI computing power catalyze the prosperity of the optical communication industry?

On March 20, the A-share market witnessed a historic moment. With the optical communication sector continuing to thrive, Source Technology’s stock price broke through the 1,000 yuan mark during trading, becoming the eighth “thousand-yuan stock” in the history of A-shares. As of the time of writing, the stock price surged to a limit of 20CM, closing at 1,140 yuan/share, not only surpassing “Cold King” Cambricon but also closely approaching the A-share king Kweichow Moutai, leapfrogging to become the second highest-priced stock in the market.

For investors, this is both a story about stock prices and a story about the industry. Against the backdrop of exploding demand for AI computing power, optical communication, as a core link in the computing power industry chain, is ushering in a new round of prosperity, with Source Technology as a typical representative of this “optical communication market.”

The heat of this round of the optical communication sector is closely linked to the recent two major global technology events—the GTC and OFC conferences. The market generally believes that computing giants represented by Nvidia are accelerating the deployment of the next-generation architecture, which will indirectly improve the profitability of cloud vendors, activate the vast AI inference demand market, and bring continuous incremental demand to optical communication. Dongfang Securities’ analysis points out that in the Scale out (network horizontal expansion) scenario, the CPO (Co-Packaged Optics) solution is gradually maturing.

Looking at the entire industry chain, the signals of high prosperity are clear. Leading cloud computing companies at home and abroad continue to increase capital expenditure, focusing on AI-driven computing infrastructure construction. As a core part of the computing network, the demand forecast for optical communication modules is constantly being raised. Wanlian Securities mentioned that the well-known optical communication market research agency LightCounting has raised its shipment forecast for 800G and 1.6T optical modules, further confirming that the industry is in an upward cycle.

Looking back at the history of A-shares, there have been very few stocks that have touched the thousand-yuan price mark, including the once “old eight stocks” such as Zhong Anke and Yunsai Zhili, as well as recent years’ Kweichow Moutai, Cambricon, Stone Technology, Hemai Co., and Aimeike. Now, with the tailwind of the AI computing wave, Source Technology has entered this very exclusive club, and every move it makes will undoubtedly continue to attract strong market attention.

However, terms like optical modules, optical communication, Co-Packaged Optics (CPO), optical fibers, optical chips, and optical devices have left many people confused and unable to distinguish them. These seemingly complex concepts are essentially different links in the optical industry chain, and this article by Huaxia ETF explains it very clearly:

01, “AI is a beam of light”

Many people think the competition of AI large models is primarily about the computing power of GPUs, but in fact, what determines the ceiling of AI computing power is never the computing capability of a single chip, but the high-speed transmission capacity of massive data. When tens of thousands of chips work together to process hundreds of billions of parameters, traditional electrical signals based on copper cables have already hit the ceiling in terms of bandwidth, loss, and power consumption, becoming the biggest obstacle to unleashing computing power.

At this point, “light” becomes the breaker. As the known fastest information carrier, light breaks through the limits of electrical interconnection, connecting massive computing power nodes into a network, preventing core chips from becoming “information islands.”

Optical communication is a communication method that uses lasers as information carriers and optical fibers as transmission channels. It is the mother of all “light”-related industries mentioned above, and all optical modules, optical chips, and optical devices revolve around it.

Optical chips and electronic chips combine to form core components, and through precision packaging, they become the optical modules we are familiar with: optical chip + electronic chip = optical module.

Countless optical modules connect to optical fiber lines, ultimately forming a global optical communication network that supports AI computing: optical module + optical fiber = optical communication.

In the AI era, optical communication is not a supporting role, but rather the “highway” of computing power, serving as the underlying infrastructure for AI to transition from dialogue to complex tasks.

02, Optical Fiber: The Highway of Light

For light to achieve high-speed, low-loss transmission, it must first have a dedicated stable “channel,” and optical fiber is that most basic road.

It is made of ultra-pure quartz glass into extremely thin fibers, utilizing the principle of total internal reflection, allowing light signals to be transmitted inside at nearly the speed of light, while maintaining low loss, strong anti-interference capability, and transmission capacity far exceeding that of copper cables. The “fiber-to-home” we often mention uses this medium; in AI computing centers, massive amounts of optical fibers connect servers, GPUs, and switches, bridging the entire computing cluster. Without optical fibers, light signals would lack a stable transmission path, making optical communication impossible.

Compared to traditional communication networks, AI data centers have greatly increased the density of optical fiber usage, primarily applied in three major scenarios: cabinet interconnection, inter-cabinet interconnection, and DCI data center interconnection. In a 10,000-card cluster, any delay can lead to a bottleneck effect, and AI networks require a 1:1 non-blocking architecture, where each GPU needs a dedicated high-speed optical fiber channel (such as InfiniBand or RoCEv2).

According to Guosheng Securities’ estimates, under the NVIDIA DGX H100/H200 SuperPOD cluster architecture, the optical fiber consumption per cabinet is more than 5-10 times that of traditional cabinets. According to CRU data, the demand for AIDC optical fibers and cables is expected to surge from 5% in 2024 to 30% in 2027, with data centers replacing telecom operators as the core growth driver of the optical fiber market.

At the same time, military drones have emerged as an underestimated new consumption market, where optical fibers are indispensable for anti-jamming, guidance, and communication in drones. The consumption per unit is high, and the tasks are non-recoverable afterward, giving them characteristics of consumables.

Strong rigidity in supply constraints has led to an upward trend in optical fiber prices. Global optical fiber and cable production capacity is highly concentrated, with China accounting for over 60%, while the rest are mainly distributed in the United States and Japan. Currently, the willingness to expand overseas is very low, resulting in a long-term scarcity of new supply. The core bottleneck—the optical preform stage—has high technical barriers and an expansion cycle of 18 to 24 months, directly locking in the short-term supply limit of the industry. Representative companies in this sector include Yangtze Optical Fibre and Cable, Hengtong Optic-Electric, Zhongtian Technology, and Fiberhome Technologies.

03, Optical Module: The Hub of Optoelectronic Conversion

Among various terms, the most frequently heard is the optical module, which is the most critical “conversion hub” in the optical communication system. Our computers, GPUs, and switches can only recognize and process electrical signals, but suitable for long-distance, high-speed transmission are optical signals. The core function of the optical module is to complete the bidirectional conversion between these two types of signals: first converting the electrical signals output by devices into optical signals for transmission through optical fibers; when the optical signals reach the target device, they are restored into electrical signals for processing by the device.

To put it simply, electrical signals are like small delivery trucks that can only run short distances within the city, while optical signals are like large trucks that can travel long distances at high speeds. The optical module is the transfer station at the highway entrance, responsible for transferring the goods from the small truck to the large truck for transport, and when the goods reach the destination, they are unloaded back onto the small truck to be delivered to the final point. Now, with the increasing demand from AI for computing power, the requirements for the conversion rate and transmission capacity of optical modules are also on the rise. The commonly mentioned figures in the industry—800G, 1.6T, 3.2T—refer to the information processing capacity of optical modules.

If the optical module had already experienced a highly active market previously, then at this current point, its future demand certainty is further solidifying and rising.

Let’s start with the latest actions of leading cloud vendors overseas: According to the latest financial reports from AI giants such as Amazon, Google, Microsoft, and Meta, the combined capital expenditure of these four companies is expected to grow by 67% year-on-year by 2025, and the total capital expenditure in 2026 is likely to reach $660 billion, a significant year-on-year increase of 60%. This massive investment is almost entirely focused on building AI computing clusters. This has also made the network transmission segment where optical modules reside a core focus of investment.

On the other hand, GPUs, TPUs, and ASICs are expected to continue ramping up in volume in 2026, and the new generation of chips is accelerating their commercial iteration, laying a solid foundation for demand growth in 2027.

Currently, Chinese optical module manufacturers have become quite competitive in the global optical communication industry, collectively holding over 60% market share (LightCounting 2025). In the high-speed optical module sector of 800G and above, their market share exceeds 70%. Companies such as Zhongji Xuchuang, New Ease Technology, Huagong Technology, Guangxun Technology, and Solstice Optoelectronics (acquired by Dongshan Precision) all rank among the top ten globally, deeply binding themselves to overseas cloud giants like Amazon, Google, Microsoft, and Meta, as well as core equipment manufacturers like Cisco and Nokia.

Under the combination of multiple factors, the port bandwidth demand of computing clusters is expected to maintain a rapid upward trend during at least the next two years of high certainty prosperity. Related companies will continue to benefit from the iteration and ramp-up of high-end optical modules such as 800G, 1.6T, and 3.2T, with a clear and strong logic supporting quarterly growth in performance. Representative companies include Zhongji Xuchuang, New Ease Technology, Huagong Technology, Cambridge Technology, Dongshan Precision, and Liante Technology.

04, Optical Devices: The Components within Optical Modules

The optical module transfer station is not an empty box; its functionality relies entirely on the various optical devices inside. Optical devices refer to all the basic components used to process optical signals in the optical communication system.

Whether it is the core components responsible for emitting and receiving light, the functional components used to amplify optical signals, merge/split optical signals, or the connectors for optical fibers, and parts that adjust optical signals, all fall under the category of optical devices. It is like the unloading equipment, sorting lines, conveyor belts, and connecting interfaces in a transfer station. If any link is missing, the entire transfer station cannot operate smoothly. The integration level and reliability of optical devices directly determine whether optical modules can work stably and efficiently.

Optical devices are further divided into active optical devices and passive optical devices. The simplest standard for distinguishing between the two is: do they require power, do they need to actively “work”?

Active optical devices must be powered to function; they play a core role in actively processing signals in optical communication. Examples include optical chips, lasers, and detectors, which rely on electricity to perform optoelectronic conversion and signal amplification, serving as the “engine” of the entire system. They have high technical barriers and high prices, making them the core profit segment of the industry chain and a key high ground in global optical communication competition.

Passive optical devices do not require power at all; they rely solely on materials, structures, and physical shapes to conduct, split, combine, and focus optical signals, making them pure physical components in optical communication. There are many types, using basic materials such as glass, metal, and ceramics, with relatively low individual value. The domestic rate of localization for mid-to-low-end products is high, but high-end precision passive optical devices still rely on imports. Companies in this industry mostly expand their product lines and diversify their offerings to scale up. Technical competition mainly focuses on material innovation, optical solutions, and precision processing. Representative companies include Tianfu Communication, Shijia Photonics, Guangxun Technology, Guangku Technology, and Taicheng Light.

05, Optical Chips: The Core of Optical Modules

Among all optical devices, the most critical and technically challenging are optical chips (laser chips + detector chips). They are the core components that actually complete the conversion of electrical and optical signals in optical modules, equivalent to the core translator in the transfer station.

Optical chips are mainly divided into two categories: one at the transmission end, responsible for converting electrical signals into optical signals; the other at the receiving end, responsible for restoring optical signals into electrical signals. The performance of optical chips directly determines the upper limit of the optical module’s rate, energy consumption, and even mass production costs, akin to how a translator’s expertise directly affects the speed and accuracy of translations. They are one of the most critical foundational links in the entire optical communication system and are widely recognized as a “bottleneck” technology. Generally, in high-end optical modules, the cost of optical chips is close to 50%.

Currently, the global optical chip market is still firmly dominated by overseas manufacturers. These overseas optical chip companies generally have full industry chain coverage capabilities from optical chips, optical transceiver components to optical modules—except for the substrate that needs to be sourced externally, they can complete all key processes such as chip design and wafer epitaxy independently, and have achieved mass production of optical chips with speeds of 25G and above. In addition, leading overseas companies are also well positioned in the high-end communication laser market, with deep technical accumulation in tunable lasers, ultra-narrow linewidth lasers, and high-power lasers.

From the perspective of the global competitive landscape, optical communication chips exhibit clear tiered differences. Companies like Broadcom, Lumentum, and Coherent, with years of technological accumulation, market cultivation, and strong R&D capabilities, are positioned in the industry’s top tier, steadily occupying the majority share of the global optical chip market. Especially in the high-end product sector, such as high-speed, high-performance EML chips and complex optical integrated chips, they hold absolute technical advantages.

Looking at the domestic market, domestic companies have already mastered core technologies in the 2.5G and 10G optical chip sectors, with over 90% localization rate for optical chips at 2.5G and below; the localization rate for 10G optical chips is about 60%. However, in the high-end field of 25G and above, the localization rate drops significantly to only 4%, leaving substantial room for domestic alternatives.

It is noteworthy that, according to data from Changguang Huaxin, the current global capacity gap for high-end optical chips has expanded to 25%-30%, and this shortage is expected to persist until 2027. This has provided domestic optical chip manufacturers with at least a 1-2 year buffer period, highlighting the opportunities for domestic substitution. Representative companies include Source Technology, Changguang Huaxin, Jias Electronics, Guangxun Technology, and Dongshan Precision.

06, CPO: A New Packaging Solution

Finally, let’s talk about the frequently mentioned CPO, which is not a new component but rather a completely new device design and packaging solution.

As we mentioned, an optical module is an independent, pluggable standardized box, usually installed at the external port of a switch or server, with a considerable distance between it and the main chip responsible for data processing inside the device. Electrical signals must travel a distance on the circuit board to reach the optical module, and the higher the rate, the more prone it is to signal loss, which also leads to higher energy consumption.

CPO stands for Co-Packaged Optics, which essentially means integrating the core components responsible for processing optical signals (the optical engine) inside the optical module directly onto the same substrate as the main chip of the switch, bringing the two core components very close together. This significantly shortens the transmission distance of electrical signals, reducing signal loss and system energy consumption, which can also greatly enhance data transmission efficiency, making it more suitable for the extreme speed and energy efficiency demands of AI supercomputing centers.

In simple terms, the previously separate “data processing center” and “signal conversion transfer station” have now merged into the same office area, eliminating the time and cost associated with internal back-and-forth.

Currently, CPO technology remains in the experimental stage and has not yet been mass-produced, belonging to the “speculation phase.” Nvidia announced earlier this year that it will scale up the deployment of CPO technology this year, and 2026 will be the year when CPO transitions from 0 to 1 in large-scale implementation.

It is worth mentioning that CPO does not create a completely new logic for optical communication; it is merely an upgrade in packaging form, extending the technology of optical modules to a higher level of integration. Meanwhile, the increase in technical barriers is more favorable for leading core manufacturers. On one hand, the core of optoelectronic conversion remains the optical chips, optical devices, and optical design, and CPO heavily relies on silicon photonic chips (PIC), which are the core reserves of leading optical module manufacturers; on the other hand, the technology accumulation of pluggable optical modules can be directly transferred to the CPO solution. Representative companies include Source Technology, Changguang Huaxin, Jias Electronics, and Guangxun Technology.