Shenwan Hongyuan Group Co., Ltd. has released a research report stating that optical modules are set to experience sustained demand growth alongside the robust development of artificial intelligence. As a critical physical carrier for optical interconnect technology, demand for optical modules is projected to increase significantly. Consequently, indium phosphide substrates, a key raw material for these modules, will also see substantial demand traction. Leveraging their superior physical and chemical properties, indium phosphide substrates are expected to play a major role in future optical module applications. As the demand for these substrates propagates upstream, the value of indium metal as a strategic mineral resource warrants urgent reassessment. The main points from Shenwan Hongyuan are as follows:
Optical interconnection is poised to become the primary pathway supporting the expansion of AI computing power. With the rapid development of intelligent computing centers, data throughput has surged, presenting unprecedented challenges to underlying hardware interconnectivity. In this context, optical interconnect technology, with its advantages of high bandwidth, low latency, and low power consumption, is expected to become indispensable infrastructure in the future computing era. Key technological directions for optical interconnection in intelligent computing centers include linearly driven pluggable modules (LPO) and co-packaged optics (CPO).
Optical modules will witness continuous demand growth driven by the AI boom. On February 3, 2026, the market research firm LightCounting presented sales forecasts in its latest market report for Ethernet optical modules (starting from 100G) and CPO used in AI clusters, comparing them with non-AI application scenarios. The market size is projected to reach $16.5 billion in 2025 and grow to $26 billion in 2026. This represents a year-on-year growth rate of approximately 60% for both 2025 and 2026.
As a crucial raw material for optical devices, demand for indium phosphide substrates is expected to surpass linear growth. The first logic, as mentioned earlier, is that optical interconnect technology will be the main conduit for AI computing expansion, leading to significant growth in demand for optical modules. This, in turn, will substantially drive demand for indium phosphide substrates, imparting a linear growth characteristic. The second logic involves a surge in indium phosphide demand due to continuous iterations in optical links. The 1.6T optical link represents the next developmental phase. Each speed upgrade not only doubles bandwidth but also increases technical complexity: while 800G transceivers typically use four optical channels, 1.6T modules require eight. Each channel necessitates an independent indium phosphide substrate transceiver component. Therefore, as the industry transitions from 800G to 1.6T, the usage of InP per optical module nearly doubles.
As an upstream resource, indium metal holds significant strategic value. Critical minerals typically refer to non-fuel minerals vital to economic and industrial development, where supply disruptions could significantly impact economic security and national security. Several minerals are considered critical/strategic by the United States, the European Union, Japan, and China, including antimony, beryllium, bismuth, cobalt, gallium, germanium, hafnium, indium, lithium, niobium, tantalum, titanium, tungsten, vanadium, platinum group elements, and rare earths.
Indium demand is growing steadily, with indium phosphide emerging as a major new growth driver. As the domestic production rate of ITO targets increases annually and indium finds expanding applications in emerging fields such as photovoltaic heterojunction cells and compound semiconductors, the global consumption structure of indium is undergoing profound changes. Future demand for indium, both in China and globally, is expected to remain steadily supported. Subsequently, indium phosphide substrates are set to further expand the demand space. According to their estimates, the indium phosphide sector is projected to drive 6.77% of indium demand by 2027.
Risk factors include potential changes in technology roadmaps, liquidity contraction risks due to macroeconomic event shocks, and unexpected changes in indium supply.