Core Viewpoint - The report by GF Securities identifies the fundamental cycle of various industries in the A-share market, categorizing them into seven distinct phases, with the optical module industry currently in a strong expansion phase and sectors like CXO in the clearing late phase [1][2]. Industry Phases - The fundamental cycle is divided into seven phases: Downturn, Initial Clearing, Mid Clearing, Late Clearing, Recovery, Expansion, and Peak [3]. - The characteristics of the four initial phases are as follows: 1. **Downturn**: Industry downturn, supply-demand imbalance, reflected in declining profits, CAPEX and inventory expansion, and decreasing capacity utilization [5]. 2. **Initial Clearing**: Continued industry downturn but beginning to reduce capacity and inventory, with profits still declining [5]. 3. **Mid Clearing**: Significant reduction in capacity and inventory, with profits still declining but capacity utilization stabilizing [5]. 4. **Late Clearing**: Industry stabilization, sufficient capacity and inventory reduction, with profits beginning to improve [5]. Current Industry Analysis - The optical module industry is in a strong expansion phase, characterized by high revenue and profit growth, capacity expansion, and rising inventory levels, driven by AI demand [2][8]. - The CXO, IGBT, and other upstream supply chain sectors are in the late clearing phase, showing signs of stabilization and initial profit recovery [2][14]. Financial Performance Highlights - Specific companies in the optical module sector have shown remarkable financial performance: - **Zhongji Xuchuang**: 25Q1 revenue growth of 37.8%, profit growth of 56.8% - **New Yisheng**: 25Q1 revenue growth of 264.1%, profit growth of 384.5% - **Tianfu Communication**: 25Q1 revenue growth of 29.1%, profit growth of 21.1% [8][9]. Sector-Specific Insights - Industries in the strong expansion phase, such as AI, exports, and new consumption, are experiencing significant demand-driven growth [10]. - Sectors in the weak expansion phase, like SOC and motorcycles, are cautious in capacity expansion despite strong profit growth, reflecting uncertainty in future demand [11][13]. - The CXO sector, with companies like WuXi AppTec showing a profit growth of 89.1%, indicates a potential turnaround as it approaches the recovery phase [14][15]. Chip Position Analysis - The report emphasizes the importance of chip positioning and allocation space, noting that sectors like CXO have a significant proportion of public fund holdings, indicating potential for increased allocation if the fundamental outlook improves [16].