Investment Rating - The report maintains an "Outperform" rating for the communication industry [1] Core Insights - The high-end optical chip market is experiencing a supply shortage, accelerating domestic substitution [1] - The demand for optical chips is driven by the rapid development of AI and the need for high-speed communication networks [4][45] - The Chinese government is actively supporting the optical chip industry through various policies and initiatives [42] Summary by Sections 1. Scaling Law and AI Impact - The Scaling Law demonstrates a positive correlation between model performance and the scale of models, data, and computational resources [10] - North American cloud providers are increasing capital expenditures significantly, with a 76.9% year-on-year growth in Q3 2025 [13] - Chinese cloud providers are also ramping up investments in AI infrastructure, with a 32.2% increase in capital expenditures [14] 2. Optical Chips as Core Components - Optical chips are critical for modern high-speed communication networks, directly influencing transmission efficiency [27][30] - The optical chip market is expected to grow at a CAGR of 17% from 2025 to 2030, with total sales projected to rise from approximately $3.5 billion in 2024 to over $11 billion by 2030 [46] - The demand for high-speed optical chips is increasing due to the transition from 800G to 1.6T modules, necessitating advanced chip technologies [4][41] 3. Domestic Market Dynamics - The domestic optical chip industry is transitioning from low-end to high-end production, supported by government policies [42] - The AI data center market is becoming a core growth driver for the optical chip industry, with significant investments in high-speed optical modules [45] - The telecommunications market is also evolving, with increasing demand for high-speed, integrated, and intelligent communication networks [51] 4. Investment Recommendations - The report suggests focusing on companies like Yuanjie Technology and Shijia Photon, which are well-positioned to benefit from the growing optical chip market [5]