Shenwan Hongyuan has released a research report projecting that by 2027, the global demand for 400G and above optical modules/optical engines from newly deployed AI chips in the data communications sector will reach 155 million units, corresponding to a total addressable market (TAM) exceeding $70 billion. The key technological evolution in optical chips is moving in three main directions: the shift from EML to silicon photonics, the increase in interconnect speeds, and the adoption of CPO/NPO solutions. The firm's analysis focuses on segments with the highest technical barriers and the potential for increased value share, such as analog electrical chips, silicon photonics design and manufacturing platforms, and optical chips. Shenwan Hongyuan's primary views are outlined below.

High Industry Growth

The trend of high shipment growth for AI computing chips and increased interconnect density per chip is clear, establishing the long-term direction of moving optics into the rack and eventually into the server itself. It is projected that by 2027, the global demand for 400G and above optical modules/optical engines from newly deployed AI chips in the data communications sector will reach 155 million units, corresponding to a total addressable market (TAM) exceeding $70 billion.

Technological Evolution: Three Key Directions

1) Migration from EML to Silicon Photonics: This is fundamentally about optical chip integration. The modulation function is shifting to silicon photonic PIC design and manufacturing, while the light source remains a continuous-wave (CW) laser with increasing power and cost. This shift will add value for companies involved in high-precision optoelectronic packaging/coupling/testing and silicon photonics design/module manufacturing.

2) Increase in Single-Channel Interconnect Speeds: Higher speeds impose stricter requirements on DSP/SerDes performance, analog chip linearity, light source power, and optical component performance, leading to an increase in the value of these components.

3) CPO/NPO Solutions: These solutions represent the comprehensive integration of electrical and optical chips, shortening transmission distances to reduce insertion loss. Due to factors like maintainability, ecosystem compatibility, interconnect distance, and thermal management, pluggable modules and various "xPO" solutions will coexist for the long term. Pluggable modules will maintain a significant market share, preserving their value in the module segment. Within "xPO" solutions, attention should be paid to companies that can evolve into the next-generation leaders in the electrical or silicon photonic chip supply chains, as they will capture greater value from optoelectronic integration.

Focus on High-Barrier, High-Potential Value Segments

1) High-barrier companies with switch chips/DSP/SerDes, potential leaders in the optoelectronic interconnect chain: Broadcom and Marvell Technology, Inc. Even if independent DSPs are eliminated or downgraded in CPO/NPO designs, the value of SerDes IP will continue to rise. Both Broadcom and Marvell have the opportunity to become leaders in the CPO interconnect domain.

2) Analog Electrical Chips: Usage is set to increase definitively. The trends of higher interconnect speeds and CPO/NPO adoption impose stricter performance requirements, such as linearity, leading to higher value for components including transimpedance amplifiers (TIAs) and drivers.

3) Silicon Photonics Design and Manufacturing Platform: Increased integration on the optical chip side will merge some optical components into the silicon photonic PIC. In heterogeneous integration schemes, this platform will continue to serve as the integration base, creating new value-added segments. Key players include Taiwan Semiconductor Manufacturing Company Limited, GlobalFoundries Inc., and Tower Semiconductor Ltd..

4) Optical Chips: The industry is moving from a primary focus on EMLs to a parallel advancement of EMLs and silicon photonics. Silicon photonic solutions transfer the modulation function of traditional EMLs (light source + modulator) to the newly added silicon photonic PIC. Meanwhile, the light source component, such as CW lasers, will see increased unit value and usage volume as interconnect speeds and channel counts rise.

Core Investment Targets

1) Comprehensive AI Optoelectronic Interconnect Giants based on DSP/Switch Chips/SerDes IP: Marvell Technology, Inc. and Broadcom.

2) Comprehensive Optical Chip Platforms: Lumentum Holdings Inc. and Coherent Corp..

3) Silicon Photonics Foundry Manufacturing: Tower Semiconductor Ltd..

4) Analog Electrical Chips: Semtech Corporation and MACOM Technology Solutions Holdings, Inc..

Risk Warnings

The report highlights risks including macroeconomic uncertainty; potential insufficient demand due to slower-than-expected AI development; uncertainties in capacity realization; and uncertainties in the evolution of cutting-edge technologies.