Investment Rating - The report maintains an "Outperform" rating for the communication industry, indicating expected growth exceeding the benchmark index by over 10% [1]. Core Insights - The North American optical communication companies such as Coherent, Lumentum, AAOI, Fabrinet, and Macom have shown significant revenue growth, particularly in optical modules and related products, suggesting a strong rebound in the second quarter [2][3][4][5][6][7]. - The demand for optical communication is driven by the growth of AI data centers and telecommunications, with companies like Coherent and Lumentum reporting substantial increases in revenue due to these sectors [3][4][5][6]. - The ongoing geopolitical tensions, such as the India-Pakistan conflict, have heightened confidence in defense equipment and military communication capabilities, which are expected to see increased demand [8]. Summary by Sections Industry Dynamics - Coherent reported Q3 2025 revenue of $1.5 billion, a 24% year-on-year increase, with 60% of this from the communication market, which grew by 46% [3][16]. - Lumentum's Q3 2025 revenue reached $425.2 million, up 16% year-on-year, driven by hyperscale cloud growth [4][17]. - Fabrinet's Q3 2025 revenue was $872 million, a 19.2% increase, with optical communication revenue at $657 million, up 11.1% [5][18]. - AAOI's Q1 2025 revenue surged to $99.9 million, a 145% increase, largely due to strong CATV market demand [6][19]. - Macom's Q2 2025 revenue was $236 million, a 30% increase, with data center market revenue up 67.3% [7][20]. Investment Recommendations - The report suggests focusing on companies in the optical communication sector, including Zhongji Xuchuang, Xinyi Technology, and Shijia Photon [9][22]. - It also highlights companies in copper connections and military communication sectors as potential investment opportunities [22]. Market Overview - The overall market performance from May 6 to May 9, 2025, showed mixed results, with the Shenwan Communication Index up by 4.96% [22]. - The optical module sector led the gains with a 15.3% increase, followed by controllers and liquid cooling technologies [22][23]. Notable Trends - The report emphasizes the resilience of the optical communication market, driven by the increasing demand for AI-related applications and private cloud deployments [20][21]. - The military communication sector is expected to benefit from advancements in technology and increased defense spending, particularly in the context of recent military conflicts [8][21].