2025-10-19 15:58Summary of Conference Call on Optical Communication Industry Industry Overview - The conference call focuses on the optical communication industry, particularly the demand for optical modules driven by significant investments in AI by North American companies such as Nvidia, OpenAI, and Meta, which are expected to lead to a surge in computing power demand and consequently boost orders in the optical communication sector [1][3][4]. Key Insights and Arguments - Investment in AI and Optical Modules: Major North American companies are making substantial investments, with Nvidia investing $100 billion in OpenAI and Meta planning over $600 billion in capital expenditures over three years. This indicates strong confidence in the AI sector, which is expected to create a severe supply-demand imbalance in the optical module market [3][22]. - Shift in Demand: There is a notable shift in optical module demand from external interconnects to internal interconnects, with companies like Google and Meta adopting optical modules for internal connections. Full optical computing is anticipated to become mainstream, driving higher demand for optical modules with greater bandwidth and speed [1][5]. - Supernode Trend: The supernode trend is significantly strengthening, with solutions like GB200 and GB300 already launched. Larger-scale supernode solutions are expected to emerge next year, necessitating higher bandwidth and speed optical modules, thus providing a broad outlook for the development of optical communication technology [1][6]. - Market Correction: Recent market corrections are attributed to profit-taking by investors after strong performance over the past two quarters. However, the fundamental upward trend remains intact, and short-term fluctuations should not overshadow the long-term positive outlook for the optical communication sector [7][8]. - Price Concerns: Concerns regarding the decline in prices of 1.6T optical modules are deemed exaggerated. Actual forecasts suggest prices will stabilize at levels beneficial to the industry, with leading companies' profits still secure [10][18]. Additional Important Points - Future Market Dynamics: The optical module market is projected to grow rapidly, potentially reaching $40-50 billion by 2026. Despite concerns about competition, high industry barriers and the need for large-scale, high-quality delivery capabilities will protect leading companies [11][14]. - Innovation as a Competitive Edge: The optical communication industry is highly technology-driven, with innovation being a critical competitive advantage. Leading companies are expected to maintain their edge through accelerated innovation cycles [12][13]. - Supply Chain and Demand Forecast: A significant supply-demand imbalance is anticipated in 2026, particularly for chips and CW laser chips, benefiting leading companies with established supply chain advantages [14][20]. - Performance Expectations: The optical module sector is expected to continue delivering strong performance in upcoming quarterly reports, with potential catalysts from major North American AI companies releasing their earnings [15][16]. - Silicon Photonics Impact: The development of silicon photonics technology is expected to lower costs and improve supply chain efficiency, enhancing the competitive position of companies like Xuchuang [19][32]. - Market Sentiment and Opportunities: Current market sentiment in the optical module sector is at a peak, presenting potential buying opportunities despite recent price corrections. Companies like Dalian Core Module and Innovation Victory are highlighted as attractive investment targets [28][31]. - Valuation Levels: Leading optical module companies currently have a price-to-earnings ratio of approximately 12-13 times, which is significantly lower than previous discussions of 25 times or higher, indicating a favorable risk-reward profile [31]. This summary encapsulates the key points discussed in the conference call regarding the optical communication industry, highlighting the growth potential, market dynamics, and investment opportunities within the sector.