Group 1 - The rapid upgrade of GPU and ASIC technologies is driving a significant increase in computing power and data transmission demands, leading to a preference for higher bandwidth network hardware in AI data centers [1][12][35] - The demand for 800G optical modules is expected to continue its high growth trajectory, with projections for substantial increases in 1.6T shipments and the initiation of 3.2T optical module development by 2026 [1][12][35] Group 2 - In the communication sector, the top three revenue growth rates for Q1-Q3 2025 are led by optical devices/modules (66.2 billion, up 65%), connectors (10 billion, up 19%), and ICT equipment (231.3 billion, up 15%), primarily driven by AI [2][28] - The bottom three revenue growth rates for the same period are industrial internet (7.8 billion, down 26%), smart cards (3.1 billion, down 21%), and smart gateways (8.3 billion, down 12%) [2][28] Group 3 - The highest net profit growth rates for Q1-Q3 2025 are seen in optical devices/modules (16.94 billion, up 123%), connectors (0.82 billion, up 62%), and IDC (6.5 billion, up 52%) [3][29] - The lowest net profit growth rates are in military communication (-0.16 billion, down 194%), smart cards (-0.002 billion, down 102%), and smart gateways (0.04 billion, down 86%) [3][29] Group 4 - The performance of optical devices/modules and connectors is notably strong due to robust AI demand, while military communication, smart cards, and smart gateways are experiencing significant declines due to cyclical fluctuations in downstream demand [6][32] Group 5 - The demand for optical modules is primarily driven by scale-out networks, which enhance processing capabilities by increasing the number of computing nodes, while scale-up networks are expected to have a vast future demand for optical modules [19][45] - The average scale-up bandwidth for XPU products is significantly higher than that of scale-out, with a ratio of 12.5, indicating a larger market potential for scale-up network hardware [21][45] Group 6 - The transition to optical interconnects is likely to become mainstream in the scale-up domain, addressing challenges related to distance and bandwidth, with major companies like Google, Meta, and Huawei already utilizing optical modules for scale-up networks [25][45] - The potential market space for optical modules in the scale-up sector could be 5-8 times larger than current levels, particularly as new architectures are adopted [25][45]

Core Insights - The communication sector is experiencing stable revenue growth and improved profitability, with significant contributions from the AI computing segment [1][3][4] Group 1: Communication Sector Performance - In the first three quarters of 2025, the A-share communication sector achieved a total revenue of 19,525.33 billion yuan, representing a year-on-year growth of 3.22% [1] - The net profit attributable to shareholders in the same period was 1,937.62 billion yuan, with a year-on-year growth of 8.80%, indicating that profit growth outpaced revenue growth [3] - The overall gross margin for the communication sector remained stable at 28.90%, while the net profit margin improved to 10.58%, up 0.56 percentage points year-on-year [4] Group 2: Quarterly Performance - In Q3 2025, the communication sector's revenue reached 6,305 billion yuan, showing a year-on-year increase of 3.7% and an improvement in growth rate compared to Q3 2024 [7] - The net profit for Q3 2025 was 564 billion yuan, reflecting a year-on-year growth of 11.68% [10] - The gross margin for Q3 2025 was 28.00%, down 0.41 percentage points year-on-year, while the net profit margin increased to 9.52%, up 0.70 percentage points year-on-year [14] Group 3: Subsector Analysis - The light module and optical device sector showed the best performance in the first three quarters of 2025, with a revenue of 662 billion yuan, marking a year-on-year growth of 65% [17] - The net profit growth leaders in the same period were the light module/optical device sector (169.4 billion yuan, up 123%) and the connector sector (8.2 billion yuan, up 62%) [21] - Conversely, the military communication and smart card sectors experienced significant declines, with net profits dropping by 194% and 102% respectively [21] Group 4: Major Operators' Performance - The three major telecom operators collectively reported a revenue of 14,846 billion yuan in the first three quarters of 2025, with a year-on-year growth of 0.57% [29] - Their combined net profit reached 1,661 billion yuan, reflecting a year-on-year increase of 4.3% [35] - In Q3 2025, the operators achieved a total revenue of 4,692 billion yuan, with a year-on-year growth of 1.1% [37] Group 5: Investment Trends - Public fund holdings in the communication sector reached a historical high of 6.87% in Q3 2025, with a market value of 3,038.68 billion yuan [43] - The PE-TTM for the communication sector stood at 43.41, indicating high market expectations for the AI computing segment [43] - The capital expenditure of major North American CSPs is accelerating, with a total of 1,133 billion USD in Q3 2025, reflecting a year-on-year growth of 75% [49][50]

Core Viewpoint - The communication sector is experiencing revenue and net profit growth, with profitability metrics reaching new highs since 2022, driven by the burgeoning AI computing power segment [1][2][4]. Group 1: Communication Sector Performance - In the first half of 2025, the A-share communication sector achieved revenue of 13,220.65 billion, a year-on-year increase of 2.99%, while net profit growth outpaced revenue growth at 7.66% [2]. - The comprehensive gross margin for the sector was 29.33%, reflecting a year-on-year increase of 0.11 percentage points, and the net profit margin was 11.08%, up by 0.49 percentage points [2]. - In Q2 2025, both revenue and net profit growth rates improved compared to the same period last year, with gross and net profit margins reaching their highest levels since 2022 [1][2]. Group 2: Subsector Performance - The optical module/device and connector segments showed strong performance in the first half of 2025, leading in revenue and net profit growth rates [3]. - The three major telecom operators in Hong Kong reported a 0.3% year-on-year revenue increase and a 5.1% net profit increase in the first half of 2025, although Q2 saw a slight revenue decline of 0.1% with a net profit growth of 6.0% [3]. Group 3: Institutional Holdings and Valuation - In Q2 2025, public fund holdings in the communication sector reached a record high of 3.85%, an increase of 1.26 percentage points, while northbound capital holdings also hit a record high of 2.18%, up by 0.57 percentage points [4]. - The current PE-TTM for the communication sector is 46.44, placing it at the 99.59th percentile over the past five years and the 74.54th percentile over the past ten years [4]. - The low penetration rate of AI users and the nascent stage of large model development suggest significant potential for capital expenditure growth as revenues from large models increase [4].

Group 1 - The communication sector's revenue and net profit growth have improved compared to the same period last year, with gross and net profit margins reaching new highs since 2022 [1][2] - In the first half of 2025, the A-share communication sector achieved revenue of 13,220.65 billion yuan, a year-on-year increase of 2.99%, while net profit growth outpaced revenue growth at 7.66% [2] - The AI computing power segment is showing strong performance, with low user penetration and the industrialization cycle just beginning, indicating significant potential for capital expenditure growth [1][4] Group 2 - The optical module/device and connector segments performed well in the first half of 2025, with the highest revenue growth rates in these areas [3] - Institutional holdings in the communication sector have reached historical highs, with public fund holdings at 3.85% and northbound capital holdings at 2.18% [4] - The current PE-TTM for the communication sector is 46.44, placing it at the 99.59th percentile for the past five years and the 74.54th percentile for the past ten years [4]

Group 1 - A-shares showed mixed performance on July 29, with active sectors including CRO, optical modules, optical chips, and innovative drugs [1] - The cloud computing 50 ETF (516630) rose over 1%, with leading stocks including Guotou Intelligent (300188), Hengsheng Electronics (600570), Zhongji Xuchuang (300308), Xinyi Sheng (300502), Wanxing Technology (300624), and Yonyou Network (600588) [1] - CITIC Securities reported that by Q2 2025, the market value of public fund holdings in the telecommunications sector reached 101.75 billion yuan, accounting for 3.90%, a record high [1] Group 2 - In Q2 2025, public funds significantly increased their holdings in the optical module/device sector while reducing positions in IDC and telecom operators [2] - The top ten stocks with increased holdings in the telecommunications sector included Xinyi Sheng, Zhongji Xuchuang, Changxin Bochuang, Shijia Photon, and Huace Navigation [2] - The cloud computing 50 ETF (516630) tracks an index with a high AI computing power content, covering popular concepts such as optical modules, computing leasing, data centers, AI servers, and liquid cooling [2]