Optical communication concept stocks surged in the afternoon session before quickly reversing gains. At the time of writing, YOFC (06869) fell 3.49% to HK$17.43, while TIME INTERCON (01729) declined 3.02% to HK$1.607. CIG (06166) dropped 0.93% to HK$7.455.

Market sentiment was influenced by Google's March 26 announcement of its AI memory compression algorithm TurboQuant, which caused global fluctuations in memory chip stocks. Cloudflare's CEO suggested this innovation could potentially disrupt the industry's computational dependency paradigm, similar to last year's DeepSeek model breakthrough.

Separately, chip design company Broadcom recently indicated facing supply chain constraints, including production capacity limitations at its manufacturing partner TSMC. Notably, UBS had previously expressed concerns about fiber optic capacity expansion, warning that aggressive production increases might trigger a new supply glut.

China Securities Co., however, believes manufacturers will adopt a more rational approach to expansion following the previous oversupply cycle. The firm noted that the industry has generally been consolidating since 2020 with minimal capacity additions, and the production cycle for fiber preforms requires at least one year. Additionally, advanced fiber products like G654E, G657, multimode, and hollow-core fibers involve complex technical requirements that present significant barriers for new market entrants.