CITIC Construction Investment: The demand for 800G optical modules is expected to continue growing rapidly by 2026, and the shipment scale for 1.6T will also increase significantly.

CITIC Securities Research Report points out that with the rapid upgrade and iteration of GPUs and ASICs, computing power performance continues to improve, while data transmission demands have also increased significantly. In AI data centers, more and more customers prefer to choose higher bandwidth network hardware. The greater the bandwidth, the lower the cost per bit, the lower power consumption, and the smaller the size. The rapid growth of 800G optical modules already reflects AI’s urgent need for bandwidth. We believe that by 2026, demand for 800G optical modules is expected to continue growing rapidly, while shipments of 1.6T modules will also increase significantly, and R&D for 3.2T modules has officially begun.

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Prioritizing Computing Power, Focusing on New Technological Breakthroughs

Optical Modules: Continuous High Growth in Demand for High-Speed Optical Modules, Scale-up Expected to Open New Market Opportunities

As GPUs and ASICs rapidly upgrade and iterate, computing power performance continues to improve, and data transmission needs have surged. In AI data centers, an increasing number of customers prefer higher bandwidth network hardware. The larger the bandwidth, the lower the cost per bit, the lower the power consumption, and the smaller the size. The rapid growth of 800G optical modules already indicates AI’s urgent bandwidth requirements. We expect that by 2026, demand for 800G optical modules will maintain high-speed growth, with shipments of 1.6T modules also expanding significantly, and development of 3.2T modules has officially started.

Looking at NVIDIA’s GPU roadmap, the company’s product upgrade cycle has been compressed to roughly one generation per year, with continuous improvements in speed and bandwidth. From 2023-2024, the company will launch the Blackwell platform, equipped with 1800GB/s NVLink 5 switches, 800G CX8 network cards, and 51T Spectrum 5 Ethernet switches; by 2025-2026, the Rubin platform will be introduced, featuring 3600GB/s NVLink 6 and NVLink 7 switches, 102T Spectrum 6 CPO switches, and 1600Gbps CX9 network cards; then, in 2027-2028, the Feynman platform will feature NVLink 8 switches, 204T Spectrum 7 CPO switches, and CX10 network cards.

According to Google’s TPU product evolution chart, from the V2 product launched in 2018 to the V7 Ironwood in 2025, ICI bandwidth has continued to grow. TPU V2 uses a 2D Torus architecture, with a single superpod containing 256 chips and ICI bandwidth of 800GB/s; Ironwood chips adopt a 3D Torus network topology, with ICI bandwidth of 1200GB/s, using 800G OSPF optical modules, with a single optical channel reaching 200Gbps, connected via OCS.

Currently, the main demand for optical modules in the industry comes from scale-out networks. Scale-out generally refers to horizontal expansion, increasing the number of compute nodes to improve overall processing capacity to handle high concurrency or large data volumes. Most newly built large clusters exceed 10,000 nodes, with some reaching hundreds of thousands, highlighting the importance of scale-out. Besides scale-out networks, future demand for optical modules in scale-up networks will be very broad. Scale-up typically refers to vertical expansion, increasing the number of GPUs/XPU in a single compute node to enhance computing power. Initially, this is mainly in eight-card server configurations, but as the scale-up domain expands to 36/64/72 cards, the product form shifts to rack-level.

From the current industry XPU products, the bandwidth of scale-up is significantly higher than scale-out. Comparing NVIDIA’s GPUs and various ASICs, the average scale-up bandwidth for XPUs is 10Tbps, while scale-out bandwidth is 800Gbps, with a ratio of 12.5. According to an interview with Broadcom CEO Hock, the company believes the market for scale-up is 5 to 10 times larger than scale-out. We interpret this as referring to network hardware, including switches, optical modules, copper cables, and PCBs. Therefore, all subfields of the network sector are expected to benefit.

As the scale-up domain gradually expands and signal transmission bandwidth increases, the transmission distance of electrical signals in metallic media is greatly limited, and a large amount of heat is generated during transmission, increasing power consumption and affecting GPU and switch chip performance. Therefore, optical interconnects are likely to become the mainstream solution in the scale-up field, solving distance and bandwidth bottlenecks. Besides OIO solutions, Google, Meta, and Huawei have already begun building scale-up networks using optical modules. Analyzing from mainstream network architectures, the demand for optical modules driven by scale-up is vast. For example, NVIDIA’s Blackwell platform has a bandwidth of 7.2Tbps, nine times that of scale-out bandwidth. As the scale-up domain continues to grow, using a two-layer fat-tree architecture, the ratio of single GPU to 800G optical module could reach 1:36, offering significant incremental space. From the network architectures of overseas CSPs, if future scale-up entirely adopts optical modules, the market could be 5-8 times larger than now. For example, AMD’s MI400 series products have higher-than-average bandwidth in both scale-up and scale-out, with a high proportion of optical modules. We continue to recommend the optical module/optical device/optical chip sector, focusing on: 1) leading optical module companies; 2) companies with potential breakthroughs in market and customer acquisition; 3) upstream optical chip/laser and optical component companies; 4) companies entering the field through acquisitions.

Risk Warning: Changes in the international environment affecting supply chain security and stability; impact on the progress of companies’ overseas expansion; unexpected tariffs; rapid growth in AI demand leading to supply shortages and underperformance; AI industry development below expectations, capital expenditure shortfalls affecting cloud computing and computing power industry chain companies; intensified market competition causing rapid decline in gross margins; exchange rate fluctuations impacting foreign exchange gains and gross margins of export-oriented companies, including ICT equipment, optical modules/optical devices sectors; slower-than-expected development of digital economy and Digital China; telecom operators’ cloud computing business growth below expectations; operators’ capital expenditure shortfalls; high holdings causing market volatility.

(Source: Cailian Press)