A Big Year for Optical Communications: How Far Has the "Optical Fiber Replacing Copper" Process Gone?
At the NVIDIA GPU Technology Conference in March this year, Jensen Huang, the founder of NVIDIA, spent a considerable amount of time discussing optical communication.
This is because in NVIDIA's latest generation of GPU architecture, the chips are interconnected through the NVLink protocol, with a bidirectional bandwidth of 1.8TB/s, which means 1.8 trillion bytes of data need to be transmitted per second. In data centers, copper cables and optical fibers are usually used together to transmit data. Copper cables have low cost and low power consumption and are responsible for short - distance connections; optical fibers have high bandwidth and long transmission distances and are responsible for long - distance transmission. However, when the communication rate of GPUs increases to 1.8TB/s, the stable working distance of copper cables shortens. Therefore, Jensen Huang stated at the conference that at this rate, copper wires have reached their limit, and optical fibers should be used instead.
More than a month later, on May 6th, NVIDIA announced an investment of up to $3.2 billion in Corning, an optical fiber manufacturer, to build three new factories in North Carolina and Texas in the United States. After the factories are completed, Corning's optical connection manufacturing capacity will increase by 10 times, and the optical fiber production will increase by more than 50%. Before this, NVIDIA had already invested $2 billion each in laser manufacturers Lumentum and Coherent, with the total investment of the three transactions exceeding $7 billion. In addition, in January this year, Meta also signed a multi - year optical fiber supply agreement with Corning worth up to $6 billion.
That is to say, chip giants and cloud computing giants are continuously increasing their investment in the upstream of optical communication. In other words, from lasers to optical fibers, leading enterprises in the industrial chain are treating production capacity as a resource that needs to be locked in two or three years in advance.
In fact, the entire optical communication industrial chain is entering a period of rapid growth. For example, optical modules, which are responsible for the conversion of optical and electrical signals, are the core devices for internal interconnection in AI data centers. In this field, the three leading A - share optical module companies, Zhongji Innolight (300308.SZ), Xinyisheng (300502.SZ), and Tianfu Communication (300394.SZ), had a total revenue of nearly 29.2 billion yuan and a total net profit attributable to the parent company of more than 9 billion yuan in the first quarter of 2026, both showing significant year - on - year growth.
At the same time, due to the demand growth rate being much faster than the supply expansion, the upstream optical fibers and lasers are already in short supply. Public information shows that the price of AI special optical fiber G.657.A2 has risen from 30 yuan per core - kilometer to more than 200 yuan per core - kilometer in the past year, an increase of more than six times. According to the calculation of Huatai Securities, the global optical fiber supply gap in 2026 is about 5% to 10%.
Mr. Zhang, a relevant person in charge of an optical device enterprise in East China, told a reporter from Economic Observer that in the past, the main customers in the optical fiber industry were telecommunications operators, and the demand mainly followed the construction of 5G base stations and broadband access projects. However, the construction of AI data centers has changed this pattern. Cloud providers have replaced operators as the largest incremental buyers of optical fibers, and the procurement scale and rhythm are completely different from the past.
"Optical Chain" at Full Production and Sales
Data from the British Commodity Research Unit (CRU) shows that the optical fiber usage in global data centers reached 69.6 million core - kilometers in 2025, and is expected to exceed 100 million core - kilometers in 2026. The core source of the increment is AI. An AI data center requires more than 10 times the amount of optical fiber compared to a traditional data center. According to the CRU's calculation, the optical fiber demand driven by AI accounted for less than 5% of the total optical fiber demand in data centers in 2024, but this proportion is expected to rise to 35% by 2027.
The demand for optical modules is also growing rapidly. Statistics from LightCounting show that the global sales of optical transceivers and related products exceeded $23 billion in 2025, a year - on - year increase of about 50%. Among them, the Ethernet optical transceiver market was about $17 billion, a year - on - year increase of 60%. The agency also predicts that the Ethernet optical transceiver market will maintain an annual compound growth rate of about 59% from 2024 to 2026, and will fall back to about 15% between 2026 and 2030.
Behind these demands is the continuous increase in capital expenditure in the industrial chain. Among them, the four major North American cloud providers (Microsoft, Google, Meta, and Amazon) had a total capital expenditure of $118.6 billion in the fourth quarter of 2025, a year - on - year increase of 64%. The market expects that the total of the four companies will further increase to $570.8 billion in 2026, or even higher. In China, Alibaba announced in February 2025 that it will invest more than 380 billion yuan in cloud and AI infrastructure construction in the next three years. Tencent, ByteDance, etc. are also increasing their investment in the AI field.
The growth in capital expenditure is also directly reflected in the financial reports of optical module companies. Zhongji Innolight's revenue in the first quarter was 19.496 billion yuan, a year - on - year increase of 192%, and its net profit was 5.735 billion yuan, a year - on - year increase of 262%. The single - quarter profit exceeded half of the whole year in 2025. Xinyisheng's revenue in the first quarter was 8.338 billion yuan, a year - on - year increase of 106%, and its global market share of 800G optical modules was 25% to 30%. Lumentum's revenue in the third fiscal quarter of fiscal year 2026 was $808 million, a year - on - year increase of 90%, and its outstanding orders are scheduled until 2028.
The market demand is growing rapidly, but the supply side has not kept up with this pace. In the view of Mr. Zhang, a relevant person in charge of an optical device enterprise in East China, the optical communication industrial chain involves more links than many people think. Its upstream is optical fiber preforms and optical fibers, the middle stream is lasers, optical chips, optical engines, and optical modules, and the downstream is data center operators and telecommunications operators.
He told the reporter that in the past few years, the main customers in the optical fiber industry were telecommunications operators, and the demand mainly followed the construction of 5G base stations and broadband access projects. After the peak of 5G deployment, the demand from operators became stable. The optical fiber industry once had over - capacity, and prices were continuously under pressure. Many small and medium - sized enterprises withdrew from the market. However, now, the construction of AI data centers has changed this pattern. Cloud providers have replaced operators as the largest incremental buyers of optical fibers, and the procurement scale and rhythm are completely different from the past.
Mr. Zhang emphasized to the reporter that the optical fiber industry has changed from oversupply to undersupply in less than two years, and the speed of this change exceeded the expectations of most manufacturers.
During the interview, the reporter also learned that optical fiber preforms are the core raw materials for optical fibers, and the production expansion cycle is between one and a half to two years. It also takes additional time for a new production line to reach a stable yield after being put into production. In addition, the price war caused by the previous over - capacity has damaged the industry. In this round of recovery, leading enterprises are generally cautious about expanding production and choose to give priority to improving the utilization rate of existing production lines.
Currently, major overseas optical fiber manufacturers are basically at full production, and the new production capacity of some enterprises will not be released until 2027 - 2028. In addition, the production capacity of mainstream manufacturers is also tilting towards special optical fibers required by AI data centers, which further compresses the supply space for ordinary optical fibers.
As a result, in addition to the six - fold price increase of AI special optical fibers in the past year, the price of ordinary single - mode optical fibers has also risen from less than 20 yuan per core - kilometer at the end of last year to nearly 100 yuan per core - kilometer. The production lines of domestic leading optical fiber enterprises are currently basically operating at full capacity, and their performance has also shown explosive growth.
For example, Yangtze Optical Fibre and Cable Joint Stock Limited Company (601869.SH) had a revenue of 3.695 billion yuan in the first quarter of 2026, a year - on - year increase of 27.70%, and a net profit attributable to the parent company of 495 million yuan, a year - on - year increase of 226.40%. Hengtong Optic - Electric Co., Ltd. (600487.SH) had a revenue of 17.791 billion yuan in the first quarter, a year - on - year increase of 34.09%, and a net profit attributable to the parent company of 1.105 billion yuan, a year - on - year increase of 98.53%.
In addition, AT&T, a US telecommunications operator, announced in March this year that it will invest more than $250 billion in building network infrastructure in the next five years, with the key direction including optical fiber deployment. That is to say, the traditional telecommunications demand other than AI is also increasing.
A market person in charge of a computing power leasing enterprise in Shenzhen told a reporter from Economic Observer that the price increase of optical fibers and optical modules has directly pushed up the network - side cost of building their computing power clusters. The budget for connection equipment for a newly built cluster this year is much higher than that two years ago. He also said that in the past, the expenditure on the network side accounted for a small proportion when building clusters, but now this cost is rising rapidly and has become an item that needs to be closely monitored in the budget.
Chen Ziyan, the director of Corning's optical communication data center business in the Chinese region, also said in a recent interview with a reporter from Economic Observer that the power of the new - generation AI cabinets has increased from less than 20 kilowatts for traditional general - purpose servers to 130 kilowatts or even higher. Data centers need to reserve more space for liquid - cooling and heat - dissipation equipment, further squeezing the space for wiring.
He believes that if traditional - diameter optical cables continue to be used in such high - power and high - density cabinets, the dense cables will block the air circulation and cause equipment overheating. Based on this, Corning's SMF - 28 Contour optical fiber has reduced its outer diameter from 250 microns to 190 microns. After being bundled into an optical cable, the cross - sectional area is reduced by about 40%, which means that nearly twice the number of connections can be deployed in the same cable trough space.
Chen Ziyan also said that the current construction of AI data centers requires rapid delivery, and the response speed of the supply chain has become an increasingly important factor for customers when choosing suppliers.
The demand for optical fibers, optical modules, and lasers is all rising rapidly, and the entire optical communication industrial chain is at full production and sales. So, as
On the other hand, if the demand for optical communication in AI data centers continues to grow at this rate, will the space for copper cables in data centers be further compressed?
Three - Year Transition Period
In NVIDIA's latest GB200 NVL72 system, 72 GPUs are connected to each other through 5184 copper cables, with a total length of more than two miles, about 3.2 kilometers.
Currently, there are three types of copper cable solutions on the market based on the presence or absence of signal processing circuits. DAC (Direct - Attach Copper) is suitable for distances within three meters, does not contain any electronic components, has a cost that is only one - sixth of that of an optical module of the same specification, and has a power consumption of less than 0.1 watt. ACC (Active Copper Cable) has a built - in signal enhancement chip, and the transmission distance can be extended to about 1.5 meters. AEC (Active Electrical Cable) has a built - in signal regeneration chip, and the transmission distance can reach 5 to 6 meters at a rate of 112G.
NVIDIA's architecture plan for the next - generation GB300 still includes copper cables: copper is used for short - distance connections within the cabinet, and optical fibers are used for long - distance connections across cabinets.
The performance of copper cable enterprises is also still growing. For example, the revenue of the high - speed communication cable business of Wohuan Science & Technology Co., Ltd. (002130.SZ) was 1.017 billion yuan in 2025, a year - on - year increase of 237.99%. According to the information it disclosed, the company has completed the development of single - channel 448G high - speed communication cable samples, maintains stable cooperation with leading connector manufacturers such as Amphenol, Molex, and TE Connectivity, and is currently sending samples to new customers such as Samtec for verification. It is also expanding production bases in Huizhou and Vietnam.
Zhou Heping, the chairman of Wohuan Science & Technology Co., Ltd., said at the 2025 annual performance briefing that in the process of AI technology iteration, optical modules and copper cables are respectively applied to different positions in data centers, and multiple solutions may coexist in the long term. He also clearly stated that the company does not currently involve the fields of optical modules and optical fibers.
A researcher from a large private equity institution in South China told a reporter from Economic Observer that the industry has now formed a relatively clear consensus on the division of labor between copper cables and optical fibers: three meters is a relatively clear dividing line. Connections over three meters are rapidly switching to optical fibers, and this part of the demand has driven up the prices of optical modules and optical fibers in the past year. For connections within three meters inside the cabinet, the cost and power - consumption advantages of copper cables have no alternative solutions in the short term.
His judgment is that the dominant position of copper cables in short - distance connections within the cabinet can be maintained for at least three years. The orders for high - speed communication cables of several listed copper cable companies he tracked last year almost doubled, and their production expansion plans are also being accelerated. In the next three years, optical fibers will be rapidly deployed in connections across cabinets and data centers, and the connection density of copper cables within the cabinet will also continue to increase. Both are growing, but in different directions.
Copper cables will still be used in short - distance scenarios for at least three years, but the technological progress of optical interconnection will not stop. A relevant person in charge of a large domestic information and communication technology company told the reporter that achieving complete optical interconnection within data centers will be the ultimate goal of the industry, and CPO (Co - Packaged Optics) is currently the recognized next - generation optical interconnection solution in the industry.
In the traditional data center connection solution, the switch chip and the optical module are two separate components, connected by a copper wire of several tens of centimeters in the middle. The data is first transmitted to the optical module in the form of an electrical signal on the copper wire, and then the optical module converts the electrical signal into an optical signal and sends it out through the optical fiber. However, after the transmission rate increases, the signal attenuation and power - consumption loss caused by this several - tens - of - centimeters copper wire are becoming larger and larger. CPO integrates the optical engine (the device responsible for optoelectronic conversion) directly onto the substrate where the switch chip is located. The transmission distance of the electrical signal is shortened from several tens of centimeters to within a few centimeters, and at the same time, the DSP (Digital Signal Processing chip, which is responsible for signal error correction and shaping and has relatively high power consumption) in the traditional optical module is eliminated.
NVIDIA's test data shows that compared with the traditional plug - and - play solution, the CPO switch has a 3.5 - fold improvement in energy efficiency and a 63 - fold improvement in signal integrity. The well - known market research institution TrendForce also recently estimated that, taking the Micro LED CPO solution as an example, after adopting this architecture, the overall power consumption of 1.6Tbps (1.6 trillion bits per second) optical communication products is expected to drop from about 30W to 1.6W.
Another market research institution, Bernstein, also estimated that the total cost of a single NVIDIA Quantum - X800 CPO switch is about $570,000, and the average price of the combination of the CPO optical engine and the laser is at least 10% higher than that of the 1.6T plug - and - play optical module. At the GPU Technology Conference in March this year, NVIDIA's newly released Feynman GPU architecture introduced silicon photonics technology on a large scale for the first time, increasing the bandwidth between chips by 10 times and reducing energy consumption by 90%. At the OFC (Optical Fiber Communication Conference) held in the same month, the Optical Interconnect Forum led more than 40 manufacturers to complete the interoperability verification of the CPO system.
An industry insider told a reporter from Economic