Huaan Securities released a research report highlighting that AI model training demands extremely high communication bandwidth, low latency, and power efficiency, making Optical Circuit Switches (OCS) an ideal interconnect solution due to their high bandwidth and low latency characteristics. Led by industry leaders, the global OCS optical switch market is projected to grow from $70 million in 2020 to $780 million by 2025, achieving a compound annual growth rate (CAGR) of 62%. The upstream core components of the OCS optical switch supply chain represent the highest technological barriers and hold significant value.
Key insights from Huaan Securities include: 1. **OCS Advantages in AI Training**: OCS, which operates via optical signal switching without electro-optical conversion or packet processing, offers lower latency, reduced power consumption, and higher reliability. It supports seamless cross-generation hardware interoperability, extending equipment lifespan. OCS is widely used in AI computing clusters for Scale-Up (single-node performance enhancement, e.g., Google TPUv4 clusters), Scale-Out (multi-node coordination, e.g., Google Jupiter architecture), and Scale-Across (cross-data-center interconnects, e.g., NVIDIA DCI).
2. **Market Growth Projections**: The global OCS optical switch market is expected to expand from $780 million in 2025 to $2.02 billion by 2031, with a CAGR of 17.2% during 2025–2031. The market remains concentrated, with the top four players accounting for ~69% share by 2025, including Google and Coherent.
3. **Supply Chain Breakdown**: - **Upstream**: Dominated by MEMS mirror arrays and other optical components (e.g., Sai Microelectronics). - **Midstream**: Led by international players like Lumentum in device integration, with domestic firms such as Guangku Technology participating in OEM and customization. - **Downstream**: Driven by AI data centers from tech giants like Google, fueling large-scale adoption in high-performance computing.
4. **Stock Recommendations**: - **Sai Microelectronics (300456.SZ)**: A leader in MEMS process development and wafer manufacturing, with expertise in through-silicon vias (TSV) and wafer bonding. Its subsidiary Silex (Sweden) began mass-producing MEMS-OCS in 2023, while its Beijing Fab3 commenced small-batch trial production in 2025. MEMS contributes 83% of revenue, with gross margins rising to 35.1% in 2024. The company is well-positioned to benefit from AI-driven demand for MEMS mirror arrays.
- **Other Potential Beneficiaries**: Companies like YTMC (300131.SZ), which plans to acquire Guanglong Integration to strengthen OCS full-process capabilities, are also highlighted for their MEMS micro-mirror R&D and mass-production expertise.
**Risks**: Potential slower-than-expected OCS adoption, MEMS technology iteration delays, demand shortfalls, intensified competition, acquisition failures, customer validation risks, and production ramp-up challenges.