In recent times, the impact of artificial intelligence (AI) has been far-reaching, especially in the realm of consumer electronicsAs the 2025 International Consumer Electronics Show (CES) approaches, industry trends reveal a significant shift toward "AI+" applications, pushing the boundaries of innovation in products ranging from AI glasses to smart toysAI is no longer confined to smartphones and AI PCs; its integration into everyday gadgets signifies its accelerated creep into everyday life.

At the heart of these advancements is the massive data processing requirement of AI modelsExperts estimate that from 2023 to 2030, the global computing power market will witness a Compound Annual Growth Rate (CAGR) exceeding 80%. This explosion in data necessitates an equally potent data transfer capability; otherwise, even the most advanced AI chips become ineffective if they are limited to processing a single data point at a time.

The demand for high data transfer speeds has created an unprecedented market opportunity for optical module companies such as Zhongji Xuchuang, New Edge, and Cambridge Technology, as well as copper cable manufacturers like Wolk Ethical Materials and Shenyu SharesThese companies are seeing a substantial increase in orders, paving the way for their strong market performance.

Initially, the primary purpose of optical modules was simple: to facilitate high-speed data transmission over fiber optic networks while consuming minimal powerHowever, modern data centers rely heavily on these components, making them indispensable in infrastructure development despite the existence of copper cables.

Unlike the copper cable market, which is primarily dominated by overseas leaders like Amphenol and Molex, the optical module market is largely defined by domestic players in ChinaRemarkably, as of 2023, Chinese companies accounted for an impressive 70% of the global top ten optical module manufacturers, including notable firms such as Zhongji Xuchuang, Huawei, and GWS Technology.

Zhongji Xuchuang, in particular, has achieved the remarkable milestone of becoming the world’s largest optical module supplier, a feat closely linked to the explosion of AI applications

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While the company's performance showed a steady increase from 2019 to 2022, it was during 2023, triggered by the launch of ChatGPT, that Zhongji Xuchuang entered a phase of explosive growth, with a staggering 77% increase in net profit.

The first three quarters of 2024 have proven equally impressive, with revenue reaching 17.31 billion yuan—a staggering year-on-year growth of 147.26%. The net profit skyrocketed to 3.753 billion yuan, representing a 189.59% increase compared to the previous year, nearly doubling their success from 2023.

The demand for high-speed optical modules continues to rise, a trend that augurs well for Zhongji Xuchuang's future performanceAs previously mentioned, there is a direct relationship between the speed of optical modules and the efficient utilization of computing powerGiven the exponential increase in computational requirements, the optical modules must keep pace with this growth.

In the first half of 2024, 400G optical modules were at the forefront, while the newly introduced 800G modules began to enter the marketYet, as the need for computational power surged, it became evident that 400G was insufficient to meet these increasing demandsConsequently, projections indicate that the shipment of 800G and 1.6T optical modules will see substantial growth, with the demand for 800G modules expected to reach 10 million units in 2024—a remarkable 400% year-on-year increase.

Zhongji Xuchuang’s customer base includes major international players such as Nvidia, Google, and AmazonThe company has reportedly completed the sampling and verification process for its 1.6T optical modules, positioning itself favorably to secure orders in the future.

Another area of advancement is the evolution of Co-packaged Optical (CPO) technologyOnce optical module data transfer rates hit 1.6T, current technology may not suffice to support further increasesThis limitation has led to innovations such as CPO, which integrates optical modules and electronic components in one package

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This integration aims to reduce physical transmission distances and minimize signal loss.

Market experts anticipate a significant rollout of CPO technology starting in 2025, with increasing contributions to markets during 2026 and 2027. This technology is particularly beneficial in ultra-large data centers and other scenarios requiring short-distance data transmissionForecasts suggest that the CPO market could balloon to $5.4 billion by 2027, nearing $8 billion by 2028.

Zhongji Xuchuang's advancements in CPO technology places it ahead of many global competitors, granting it a strategic advantageHowever, delving deeper into the optical module sector unveils another underappreciated opportunity: optical chips.

Optical modules primarily consist of optical and electronic chips, with their value contribution ranking among the highest in the supply chainExperts estimate that costs associated with silicon optical chips can account for 70% to 80% of the overall priceThe significance of optical chips, including laser and detector chips, is particularly pronounced in mid-tier and high-end optical modules, composing over 50% of their cost.

The domestic market for optical modules demonstrates a low rate of localization, with China importing a large portion of its optical chip supplyFor instance, only 20% of domestically used 25G optical chips are produced locally, while even fewer than 5% of optical chips rated above 25G are manufactured within China.

Cambridge Technology, for example, relies heavily on overseas giants like Lumentum for its optical chip supplyThe slowing growth of Zhongji Xuchuang in 2024 can also be attributed, in part, to insufficient supplies of these critical components.

As the proportion of high-speed optical modules increases, the importance of optical chips will inevitably growThus, there exists a pressing need for domestic alternatives in the optical chip market, promising vast potential for local replacements.

Predictions suggest that by 2026, China's optical chip market could reach $3 billion—a steady growth phase beginning post-2023. Companies like Yanjie Technology, Shijia Photonics, and GWS Technology are spearheading efforts within this sector.

Among these, Yanjie Technology distinguishes itself as a comprehensive optical chip IDM (Integrated Device Manufacturer) supplier in China, offering laser chips ranging from 2.5G to 10G, and even higher speeds

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