GOLDEN SUN SECURITIES·2025-04-27 06:23Investment Rating - The report maintains a "Buy" rating for the optical communication sector, indicating a positive outlook for the industry [5][11]. Core Insights - The report highlights three marginal changes affecting the optical communication industry: tariffs, demand, and holding structure. It suggests that tariff pressures are gradually being released, leading to a potential valuation recovery for the optical communication sector. Demand remains strong, particularly from domestic companies like NewEase and overseas firms like Google, which continue to show high capital expenditure (Capex) guidance. The holding structure has improved as funds have exited the sector during tariff-induced declines, positioning the optical communication sector as a potential area for new capital inflows as market sentiment recovers [21][22][25]. Summary by Sections Investment Strategy - The report emphasizes the importance of focusing on the optical communication sector, particularly companies like Zhongji Xuchuang, NewEase, and Tianfu Communication, which are expected to benefit from the ongoing demand for computing power and the recovery of market sentiment [26][14]. Market Review - The communication sector has seen an increase, with the optical communication index performing particularly well, rising by 7.8% compared to other sub-sectors [17][20]. Demand Side Analysis - Despite concerns about potential stagnation in AI computing demand due to tariffs, downstream companies are still experiencing high revenue growth. For instance, Google's Q1 2025 revenue reached $90.2 billion, a 12% year-on-year increase, with a net profit of $34.54 billion, up 46% from the previous year. Google maintains a Capex guidance of $75 billion for 2025, with Q1 Capex at $17.2 billion, a 43% increase year-on-year [23][24]. Holding Structure - The report notes that the holding structure in the optical communication sector has improved significantly as many funds exited during the tariff-induced downturn. This has created an opportunity for new capital to flow back into the sector as market sentiment stabilizes [25][7]. Key Recommendations - The report recommends focusing on leading companies in the optical module industry, such as Zhongji Xuchuang, NewEase, and Tianfu Communication, while also considering companies like Weiteng Electric that have seen significant declines due to tariff impacts but possess growth potential [26][8].