AI optical comms market forecast to grow from $71.1 billion in 2026 to $286.1 billion in 2028
CPO mass-production delay concerns ease; scale-up network optical conversion accelerates
RF Materials named top pick on Nvidia CPO value chain; target price 68,000 won
The market for optical communications equipment and components used in AI data centers could quadruple within two years, according to a new industry forecast.
AI investment is widely expected to continue for the foreseeable future, and as AI semiconductor performance improves, the volume of data moving between chips surges — driving demand for the optical communications equipment needed to transmit that data at speed. Securities analysts say it is time to consider increasing exposure to optical communications stocks.
According to financial investment industry sources on the 29th, Shinyoung Securities said in a report dated the 28th that the market for optical communications equipment and components for AI data centers is projected to expand from $71.1 billion this year to $286.1 billion in 2028. The brokerage issued an "overweight" recommendation on the telecommunications equipment sector and named RF Materials as its top pick.
The key driver is not just the growing number of AI chips, but also the rapid increase in the volume of data each individual chip must process.
Nvidia's AI GPUs, for instance, double their external data-transfer speeds with every new generation. Shinyoung Securities said this will increase the quantity of optical fiber and optical components required while also pushing prices higher as demand shifts toward faster products.
If AI semiconductors are the cars, optical communications are the highway. As more cars travel faster, existing roads can no longer handle the traffic — more lanes must be added and roads extended. In the same way, as chip performance rises inside AI data centers, investment in the optical connections linking chips and servers is bound to grow.
Particularly notable is the growing likelihood that optical communications will penetrate even the short-distance connections inside data centers currently handled by copper wiring. As data volumes and speeds increase, copper suffers from greater signal loss and heat generation, whereas optical transmission maintains relatively low signal loss even at high speeds and large data volumes.
A further tailwind for optical communications stocks is the reduced risk of delays in the mass production of co-packaged optics, or CPO. CPO is a technology that places the device converting data transmission from electrical signals to light in close proximity to the semiconductor.
The significance of CPO commercialization is that it would bring optical communications into the short-distance connections inside data centers that copper wiring currently handles — creating fresh demand for related components such as lasers, optical engines, packages and optical fiber. Shinyoung Securities forecast that CPO's share of the optical communications components and equipment market will rise from zero in 2025 to 33 percent by 2028.
In June, concerns emerged that CPO mass production could be delayed until 2028 or 2029, raising fears that the growth timeline for related stocks would be pushed back. Nvidia's announcement this month that it will proceed with full-scale mass production of CPO-enabled products has largely put those concerns to rest.
Shinyoung Securities identified RF Materials as the domestic stock best positioned to benefit from these developments. RF Materials produces key packaging components that protect lasers used in optical communications and dissipate heat. The company supplies optical communications laser packages to Lumentum and has recently expanded into CPO laser packages, connecting it to Nvidia's CPO value chain through Lumentum.
"The direction toward broader CPO adoption and an expanding non-China market share is clear, which leads us to view the current share price as an investment opportunity," said Jung Won-seok, an analyst at Shinyoung Securities. "This is the time to increase weighting in optical communications stocks." The brokerage set a target price of 68,000 won, representing upside of 77.8 percent from the 38,250-won share price at the time of the report.
th5@heraldcorp.com
