Core Viewpoint - After significant stock price increases in recent months, most positive fundamentals are believed to be reflected, suggesting a profit-taking strategy in a generally bullish market [1][7]. Group 1: Stock Ratings Adjustments - Eoptolink's rating has been downgraded from "Buy" to "Neutral" due to a 338% year-on-year growth in Q2 2025, with expectations of a significant slowdown in growth in the coming quarters [3][7]. - Innolight maintains a "Buy" rating as it is a pioneer in the new 1.6T product, expected to achieve significant growth in 2026, indicating more upside potential [6][19]. - TFC's rating has been downgraded to "Neutral" as its growth potential is already reflected in the current stock price, which exceeds +1 standard deviation [9][19]. - Accelink's rating remains "Neutral" due to weak fundamentals and high valuation compared to peers [8][19]. Group 2: Stock Performance Overview - All transceiver stocks have seen substantial increases, with Eoptolink up 460%, Innolight up 312%, TFC up 269%, and Accelink up 62% since April 1 [1][11]. - Despite a 12% year-on-year decline in revenue, ZTE's H-shares have risen 49% this year, reflecting optimism in AI infrastructure [3][15]. - YOFC's H-shares have surged 319% despite a 22% decline in revenue, driven by high-end fiber products with significant applications in AI infrastructure [3][15]. Group 3: Future Growth Catalysts - The anticipated rapid growth in 1.6T transceiver shipments is expected to be a catalyst for revenue and earnings in the second half of 2025 and into 2026 [13][19]. - The demand for 800G is expected to remain strong, potentially offsetting pricing and volume pressures from lower-end transceivers [13][19]. - Companies have completed the new product validation phase for 1.6T products, indicating readiness for commercial production starting in 2025-2026 [13][19]. Group 4: Earnings Forecast Adjustments - Earnings forecasts for Innolight, Eoptolink, Accelink, and TFC have been raised due to their strong performance in Q2 2025, while ZTE's forecast has been downgraded due to unmet earnings expectations [23][24]. - The positive growth momentum for 800G demand is expected to continue, with 1.6T shipments accelerating in the coming quarters, making 2025 a year with strong growth potential [23][24].

Core Viewpoint - Goldman Sachs expresses unprecedented optimism for the leading optical module companies, Zhongji Xuchuang and Xinyi Sheng, despite their recent significant stock price increases [3][4]. Group 1: Valuation and Price Targets - Goldman Sachs has raised the 12-month target prices for Zhongji Xuchuang to RMB 392 and Xinyi Sheng to RMB 398, based on their reasonable valuations despite recent stock price surges [9][24]. - The expected price-to-earnings (P/E) ratios for 2026 are 19x for Xinyi Sheng and 23x for Zhongji Xuchuang, which align closely with their historical averages since 2021 [4][24]. Group 2: Market Drivers - Three main drivers are identified for the upward revision of target prices: ongoing supply tightness, elimination of tariff risks, and a slowdown in the rate of price declines [5][9]. - The industry is facing a tight supply of upstream components, such as 200G EML lasers, which benefits leading companies like Zhongji Xuchuang due to their scale and silicon photonics technology advantages [11]. - The recent U.S. tariff policy has exempted optical modules shipped from Thailand and Malaysia, alleviating concerns about market share loss due to trade tensions [7][14]. Group 3: Price Trends and Earnings Projections - The average selling price (ASP) decline is expected to slow from a previous forecast of 20% to 15% annually from 2025 to 2027, driven by supply constraints and increased demand for higher-end products [8][14]. - Goldman Sachs has raised its earnings per share (EPS) forecasts for Zhongji Xuchuang and Xinyi Sheng by 3% to 38% for the years 2025-2027 [9][16]. Group 4: Long-term Growth Potential - The value of optical modules in AI infrastructure is continuously increasing, with a rising "binding rate" between optical modules and GPUs [17]. - The expected spending on optical modules per dollar of GPU expenditure is projected to increase from $0.07 in the H100 GPU era to $0.12 in the next-generation Rubin Ultra GPU era [18][20]. - This trend, along with product upgrades from 800G to 1.6T and eventually to 3.2T, is expected to provide strong and sustainable revenue growth for Zhongji Xuchuang and Xinyi Sheng, mitigating concerns about cyclical risks in the industry [21]. Group 5: Reasonable Valuation Post-Price Surge - Despite significant stock price increases, Goldman Sachs believes the valuations of both companies still do not fully reflect their growth potential [23][24]. - Long-term profit forecasts suggest that peak net profits for Zhongji Xuchuang and Xinyi Sheng could reach approximately RMB 400 billion and RMB 360 billion, respectively, by 2029 [25].

Core Viewpoint - Goldman Sachs expresses unprecedented optimism for the leading optical module companies, Zhongji Xuchuang and Xinyi, despite recent significant stock price increases, indicating that their valuations remain reasonable [1] Group 1: Valuation and Price Targets - Goldman Sachs calculates the expected P/E ratios for Zhongji Xuchuang and Xinyi for 2026 at 19x and 23x, respectively, which aligns closely with their historical averages since 2021 [1] - The target prices for Zhongji Xuchuang and Xinyi have been raised to RMB 392 and RMB 398, respectively, based on three driving factors [3][7] - The expected EPS for Zhongji Xuchuang and Xinyi for 2025-2027 has been increased by 3% to 38% due to improved market conditions [3][7] Group 2: Supply and Demand Dynamics - The industry is facing tight supply conditions for upstream components, such as 200G EML lasers, which may limit competitors like Fabrinet while benefiting Zhongji Xuchuang [5] - Zhongji Xuchuang has a workforce of 7,000-8,000 in Thailand, significantly larger than its competitor Coherent, which has over 3,000 employees in Malaysia [5][6] - The recent U.S. tariff policy has exempted optical modules shipped from Thailand and Malaysia, alleviating concerns about market share loss due to trade tensions [2][6] Group 3: Price Trends and Market Resilience - The annual average selling price (ASP) decline is expected to slow from a previous forecast of 20% to 15% due to ongoing supply constraints and increased demand for higher-end products [3][6] - If all tariff uncertainties are removed, ASP declines could potentially be limited to 10%, translating to higher revenue and profit margins [7] - The binding rate of optical modules to GPU spending is increasing, indicating a growing value of optical modules in AI infrastructure [8][9] Group 4: Long-term Growth Potential - The upgrade cycle from 800G to 1.6T and eventually to 3.2T products is expected to provide strong and sustainable revenue growth for Zhongji Xuchuang and Xinyi [8][11] - Goldman Sachs projects peak net profits for Zhongji Xuchuang and Xinyi to reach approximately RMB 40 billion and RMB 36 billion, respectively, by 2029 [12] - The theoretical stock prices calculated based on peak earnings align closely with the new target prices set by Goldman Sachs [13]

Core Viewpoint - The global AI infrastructure boom is creating a significant supply-demand imbalance in the optical communication industry, leading to unprecedented profit opportunities for the entire supply chain, particularly benefiting upstream chip manufacturers [3][4]. Group 1: Industry Trends - The optical communication industry is experiencing a structural shortage driven by AI, which is expected to sustain its growth and profitability beyond market expectations [3]. - The demand from global hyperscale AI and cloud service providers is expected to support the continuous growth of Chinese optical transceiver manufacturers [4]. Group 2: Company Performance - Lumentum (LITE) reported impressive results with Q4 FY25 revenue of $480.7 million, a year-on-year increase of 55.9%, and a turnaround from a net loss of $252.5 million to a profit of $213.3 million [5]. - LITE's forward guidance for Q1 FY26 estimates revenue between $510 million and $540 million, representing a quarter-on-quarter growth of 6%-12% and a year-on-year growth of 51%-60% [5]. - Coherent (COHR) showed stable growth, with Q4 FY25 revenue increasing by 16.4% year-on-year, driven by strong performance in the data center segment [7]. Group 3: Chip Supply and Demand - The EML chip supply bottleneck is highlighting opportunities in the industry, with LITE achieving record EML chip shipments and nearly doubling revenue year-on-year [6]. - LITE is transitioning from 3-inch wafers to 4-inch wafers to alleviate chip shortages, with plans to upgrade to 6-inch wafers in the future [6]. - The year 2026 is anticipated to be a breakthrough year for the shipment of 100G and 200G laser chips [7]. Group 4: Data Center Business - The data center and communication business contributed 62% of total revenue, growing 39% year-on-year to $942 million [8]. - The company began shipping 1.6T transceivers in Q2 and expects significant revenue contributions from these products in FY26 [8].

Core Insights - The strong performance of Lumentum (LITE) and Coherent (COHR) in Q2 indicates a significant supply-demand imbalance in the optical communication industry driven by the global AI infrastructure boom [1] - Nomura Securities suggests that the current AI-driven optical communication industry cycle has greater sustainability and growth potential than previously expected, creating unprecedented profit opportunities across the supply chain [1] Company Performance - Lumentum reported Q4 FY25 revenue of $480.7 million, a year-over-year increase of 55.9%, with GAAP net profit turning from a loss of $252.5 million in the same period last year to a profit of $213.3 million [2] - Lumentum's forward guidance for Q1 FY26 estimates revenue between $510 million and $540 million, representing a quarter-over-quarter growth of 6%-12% and a year-over-year growth of 51%-60% [2] - Coherent's Q4 FY25 revenue grew by 16.4% year-over-year, with non-GAAP earnings increasing by 73.6% to $192 million, driven by strong performance in the data center segment [2] Market Dynamics - The EML chip supply bottleneck is creating significant opportunities for the optical communication industry, with Lumentum transitioning from 3-inch wafers to 4-inch wafers to alleviate chip shortages [3] - The data center and communication segments contributed 62% of total revenue, which grew by 39% year-over-year to $942 million [4] - The company began shipping 1.6T transceivers in Q2 and expects meaningful revenue contributions from these products in FY26 [4]

Core Viewpoint - Coherent's stock plummeted nearly 20% in pre-market trading due to disappointing revenue guidance for the next quarter, despite reporting strong revenue growth driven by AI data center investments [2][5]. Financial Performance - For the fiscal year 2025, Coherent reported revenue of $5.81 billion, a 23% increase year-over-year, with a GAAP gross margin of 35.2%, up 424 basis points from the previous year [3]. - The fourth quarter revenue reached a record $1.53 billion, reflecting a 16% year-over-year growth and a 2% quarter-over-quarter increase [3][4]. - Non-GAAP diluted earnings per share for the fourth quarter were $1.00, compared to $0.91 in the previous quarter and $0.51 in the same quarter last year [4]. Future Guidance - Coherent expects next quarter's revenue to be between $1.46 billion and $1.6 billion, which is below market expectations, raising concerns among investors [5]. - The company anticipates a non-GAAP gross margin between 37.5% and 39.5% for the next quarter, with total operating expenses projected to be between $290 million and $310 million [6]. Market Trends - The demand for AI data centers significantly boosted Coherent's network business, with data center revenue growing over 60% year-over-year [7]. - The global Ethernet optical module market is projected to reach $10 billion in 2024, nearly doubling year-over-year, with a continued growth rate of around 50% in 2025 [8]. - Approximately 80% of market demand for optical modules is driven by AI data centers, which are primarily supporting high-performance networks [8][9].

Core Viewpoint - Coherent's stock plummeted nearly 20% in pre-market trading due to disappointing revenue guidance for the next quarter, despite reporting record revenue growth driven by AI data center investments [1][2]. Financial Performance - For the fourth quarter of fiscal year 2025, Coherent reported a record revenue of $1.53 billion, a 16% year-over-year increase [1][4]. - The total revenue for fiscal year 2025 reached $5.81 billion, up 23% from the previous year [4]. - GAAP gross margin was 35.2%, an increase of 424 basis points year-over-year, while non-GAAP gross margin was 37.9%, up 358 basis points [3][4]. - Non-GAAP diluted earnings per share for the fourth quarter was $1.00, compared to $0.51 in the same quarter last year [4]. Market Concerns - The company expects next quarter's revenue to be between $1.46 billion and $1.6 billion, which is below market expectations, causing investor concern [1][4]. - The anticipated sale of aerospace and defense business is expected to generate approximately $20 million in revenue, which is not included in the next quarter's guidance [4]. AI Data Center Demand - Coherent's network business is benefiting significantly from the surge in AI data center investments, with data center revenue growing over 60% year-over-year [6]. - The company anticipates continued strong demand for 800G transceivers, with initial shipments of 1.6T transceivers also contributing to revenue growth [6]. Industry Outlook - According to LightCounting, the global Ethernet optical module market is projected to reach $10 billion in 2024, nearly doubling year-over-year, with a growth rate of around 50% in 2025 [7]. - Approximately 80% of market demand is driven by AI data centers, which are primarily supported by high-performance networks [7]. - The evolution of AI data center architectures is expected to sustain high-end optical module demand, providing long-term growth momentum for the industry [7].

Core Viewpoint - Coherent's stock plummeted nearly 20% in pre-market trading due to disappointing revenue guidance for the next quarter, despite achieving record revenue in the fourth quarter driven by AI data center investments [1][2]. Financial Performance - For the fiscal year 2025, Coherent reported revenue of $5.81 billion, a 23% increase year-over-year, with a GAAP gross margin of 35.2%, up 424 basis points from the previous year [2]. - The fourth quarter revenue reached a record $1.53 billion, reflecting a 16% year-over-year growth and a 2% quarter-over-quarter increase [2][4]. - Non-GAAP diluted earnings per share for the fourth quarter were $1.00, compared to $0.91 in the previous quarter and $0.51 in the same quarter last year [4]. Market Outlook - The company anticipates next quarter's revenue to be between $1.46 billion and $1.6 billion, which is below market expectations, raising concerns among investors [4][5]. - Coherent's network business is benefiting from a surge in AI data center investments, with data center revenue growing over 60% year-over-year [7]. - The demand for 800G transceivers is expected to continue increasing, with initial shipments of 1.6T transceivers also contributing to revenue growth [7]. Industry Trends - Approximately 80% of market demand for optical modules is driven by AI data centers, primarily supporting high-performance networks [8]. - The global Ethernet optical module market is projected to reach $10 billion in 2024, nearly doubling year-over-year, with a sustained growth rate of around 50% in 2025 [8]. - The evolution of AI data center architectures is expected to drive long-term demand for high-end optical modules, providing growth momentum for the industry [8].

Core Viewpoint - Coherent's stock plummeted nearly 20% in pre-market trading due to disappointing revenue guidance for the upcoming quarter, despite strong performance in the previous fiscal year driven by AI data center investments [2][3][4]. Financial Performance - For the fourth quarter of fiscal year 2025, Coherent reported a record revenue of $1.53 billion, a 16% year-over-year increase [2][6]. - The total revenue for fiscal year 2025 reached $5.81 billion, up 23% from the previous year, with a GAAP gross margin of 35.2%, an increase of 424 basis points [5][6]. - Non-GAAP diluted earnings per share for the fourth quarter were $1.00, compared to $0.91 in the previous quarter and $0.51 in the same quarter last year [8]. Future Guidance - Coherent expects revenue for the next quarter to be between $1.46 billion and $1.6 billion, which is below market expectations, raising concerns among investors [2][8]. - The company anticipates a non-GAAP gross margin between 37.5% and 39.5% for the upcoming quarter [9]. Market Dynamics - The demand for AI data centers significantly boosted Coherent's network business, with a growth rate exceeding 60% for the year [11]. - The market for Ethernet optical modules is projected to reach $10 billion in 2024, with a nearly 100% year-over-year increase, driven primarily by AI data center demand [12]. Industry Outlook - The evolution of AI data center architectures is expected to sustain high-end optical module demand, providing long-term growth momentum for the industry [12].