Is CPO finally coming?

Today, as the competition in computing power stacking crosses the threshold of ten - thousand - card level, the arena for AI infrastructure competition is quietly shifting from the process technology of chips themselves to the connection efficiency between chips. With the exponential expansion of large - model parameters, traditional pluggable optical modules are struggling in the face of bandwidth density and power consumption limitations, while copper cables can only support a transmission distance of less than two meters at a rate of 224Gbps. A battle to break through the limits around the "pipeline" has already begun.

Against this backdrop, Co - Packaged Optics (CPO) is no longer just a cutting - edge concept in the laboratory but has quickly become a core issue in the industry.

Redefining the "High - Speed Channel" between Chips

CPO stands for Co - Packaged Optics. It is an innovative optical interconnection architecture that integrates high - speed optical engines/optical modules with switch chips (Switch ASIC) or large - scale AI computing chips on the same packaging substrate or in the same chassis through 2.5D/3D advanced packaging technology. Its core logic is to achieve efficient interconnection with the principle of "short electrical and long optical" - limiting the high - speed electrical signal transmission to a short distance of a few millimeters and relying on optical fibers for medium - and long - distance transmission. The aim is to fundamentally solve the pain points of traditional pluggable optical modules, such as high power consumption, large signal loss, and limited bandwidth.

Image source: Flying Wanz

Relying on silicon photonics, the underlying core technology, CPO can effectively integrate key devices such as modulators and detectors, showing overwhelming advantages in performance. Compared with traditional solutions, it can reduce power consumption by more than 40%, increase bandwidth by three times, and shorten latency by 50%. At the same time, it can save space costs and improve network resilience, perfectly meeting the core requirements of AI training clusters and hyperscale data centers for high bandwidth, low power consumption, and low latency.

From the perspective of industry development trends, CPO is accelerating the transition from the technology verification stage to early commercialization, and its broad market prospects are emerging. Currently, the interconnection rate is rapidly evolving from 400G/800G to 1.6T and is expected to exceed 3.2T in 2027. The performance of traditional electrical interconnection and pluggable optical module architectures is approaching their ceilings, making the large - scale application of CPO inevitable.

Market data confirms the urgency of this judgment.

According to Yole and industry research, the global Datacom CPO market size is expected to soar from less than $70 million in 2024 to $8 billion in 2030 at a compound annual growth rate of over 120%. Among them, the Scale - Up vertical expansion scenario will account for nearly 70% of the market - which precisely meets the sharpest bandwidth requirements of ten - thousand - card level clusters such as NVIDIA's GB200 NVL72 and Huawei's Ascend super - nodes.

If CPO was just a long - term vision before, now the substantial expansion of orders and production capacity in the industrial chain seems to have pushed it to the eve of a commercial explosion. This technological change driven by AI's impact on the data center architecture is quickly reflected in the performance of the upstream supply chain.

Whether it is the significant pre - increase in the performance of domestic CPO leaders such as Zhongji InnoLight, New Photonics, and Tianfu Communication in 2025, or the order and revenue signals from overseas core manufacturers, they all confirm from the aspects of actual business performance and earnings conference views that the CPO industry is about to enter a period of rapid explosion.

CPO in Financial Reports: Three Major Manufacturers Confirm the Explosion of Demand

Lumentum: Full Orders and Shortage of Production Capacity

As a core upstream supplier in the CPO industrial chain, the financial results of Lumentum for the second quarter of fiscal year 2026 announced have become one of the strongest evidences for the upcoming explosion of CPO demand. In this quarter, the company's revenue reached $665.5 million, higher than the market expectation of $646.7 million, and the year - on - year revenue increase was as high as 65%, fully demonstrating investors' strong confidence in its ability to seize emerging opportunities in optical technology and maintain continuous growth momentum.

Behind this outstanding performance, the strong demand in the AI and cloud computing markets plays a significant supporting role. Among them, the potential of the CPO business has begun to show, becoming one of the core engines for the company's future growth.

Lumentum's management clearly stated in the earnings conference call that the company has listed co - packaged optical devices (CPO), cloud transceivers, and optical circuit switches (OCS) as the three core catalysts for future growth. Currently, only the potential of the CPO business has been initially released, and there is still much room for growth. From the order side, the explosive growth of CPO demand is clearly visible: the company has won a procurement order for ultra - high - power lasers worth hundreds of millions of dollars, specifically for supporting the horizontal expansion (Scale - Out) of optical networks, and the products are expected to be officially shipped in the first half of 2027. At the same time, the existing initial CPO - related orders are progressing steadily as planned, and the shipment volume of ultra - high - power (UHP) chips will see a significant inflection point in the second half of 2026.

More notably, Lumentum expects that its CPO - related revenue will reach about $50 million in the fourth quarter of 2026, and there will be hundreds of millions of dollars in CPO - related orders converted into revenue in the first half of 2027. These hundreds of millions of dollars in orders come from multiple customers, not just one, which is sufficient to prove the broadness and strength of the CPO market demand.

The tight situation on the production capacity side further confirms the hot demand for CPO. According to Lumentum, the production capacity of its CPO - related high - power laser wafer fabs is almost fully booked. Even though it has already completed 40% of the production capacity expansion target in advance and plans to increase the production capacity by another 20% in the next few quarters, the imbalance between supply and demand in the CPO market is still intensifying, and the company's team needs to fully allocate production capacity to meet the surging demand from customers.

To cope with the continuously rising demand for CPO, Lumentum has launched an active production capacity planning. It not only accelerates the release of existing production capacity through precision tool optimization and yield improvement but also plans to start from the second half of 2026, relying on the existing projects in Sagamihara, Saga Prefecture, and the efficient utilization of wafer fabs in Caswell, UK, and Takao, Japan, to achieve significant new production capacity, providing support for the large - scale development of the CPO business.

Meanwhile, Lumentum is also continuously deepening its CPO - related technology layout. It has not only increased the shipment volume of ultra - high - power lasers for CPO applications but also provided continuous - wave lasers for 800G manufacturers. Relying on ultra - high - power lasers and external light source modules, it has built a unique technological advantage and actively participated in the customer design cycle, laying a solid foundation for subsequent order fulfillment.

From the perspective of future development potential, CPO will not only continue to make breakthroughs in the horizontal expansion (Scale - Out) scenario but also achieve large - scale penetration in the vertical expansion (Scale - Up) scenario, ultimately initiating an industrial revolution to completely replace copper cables. Lumentum's management pointed out that although copper cables are still the mainstream solution for ultra - short - distance high - speed transmission within a single rack or cluster in data centers, they are gradually approaching their physical limits, and the industry is accelerating the transformation to optical solutions.

Lumentum plans to launch the first batch of large - scale CPO products by the end of 2027 to replace longer - distance copper cable connections. Looking forward, CPO technology will occupy an increasing share of data center connections and ultimately completely replace copper cables. In particular, Lumentum expects that in the fourth quarter of 2027, the CPO products in the Scale - Up scenario will see a significant increase in volume. With the maturity of technology and the release of production capacity, the penetration rate of CPO in this core scenario will rapidly increase, further opening up market growth space.

Coherent: Large - Scale Orders Sign and Define the Incremental Market Logic of CPO

As another core player in the upstream of the CPO industrial chain, the financial results of Coherent for the second quarter of fiscal year 2026 (as of December 31, 2025) just announced have once again provided strong evidence for the upcoming explosion of CPO demand. The content of its financial report and earnings conference call not only shows its own strong growth momentum but also clearly reveals the incremental logic and huge future potential of the CPO industry.

In this quarter, Coherent delivered an outstanding performance. Its revenue reached $1.69 billion, a year - on - year increase of 17%. Excluding the impact of the sale of its aerospace and defense business, the year - on - year increase was as high as 22%, and the profit also increased significantly. The core driving force for this growth comes from the strong demand in the data center and communication segments, and the breakthrough progress in the CPO - related business has become a key highlight.

From the perspective of the business structure, the data center and communication segment has become Coherent's core growth engine, accounting for 72% of the total revenue in this quarter and a year - on - year increase of 34%. Behind this is the explosive step - up demand brought about by the construction of AI data centers. As the core technology for the next - generation optical interconnection, CPO has become an important growth driver for this segment.

Jim Anderson, the CEO of Coherent, used the word "extraordinary" to describe the current market demand in the earnings conference call, and the breakthrough progress in the CPO business is one of the core sources of his confidence. The company has received an "extremely large" CPO solution order from a leading AI data center customer. This order includes the new high - power continuous - wave lasers that the company started shipping samples of last year. One of the key factors for the customer to choose to cooperate with Coherent is that its high - power continuous - wave lasers are produced on the world's only 6 - inch indium phosphide (InP) production line, with significant technological and production - capacity advantages.

It is reported that this major design win will start to generate initial revenue at the end of 2026 and will contribute more significant revenue increments in 2027 and beyond. At the same time, the company is also in in - depth cooperation with several other customers on CPO - related application solutions based on indium phosphide and 200G VCSEL, which is sufficient to prove the strength and broadness of the CPO market demand.

Coherent's order advantage is not accidental. Behind it is the company's forward - looking production capacity layout and technological leadership, which also echoes the industry trend of the upcoming large - scale explosion of CPO demand. Facing the shortage of indium phosphide in the entire industry, Coherent has bet on the world's exclusive 6 - inch indium phosphide production line. Compared with the industry - common 3 - inch solution, a 6 - inch wafer can produce more than four times as many chips, while halving the cost and maintaining a higher yield rate than the 3 - inch production line.

Currently, Coherent is simultaneously promoting the upgrade of its production lines in Sherman, USA, and Älvsjö, Sweden, and plans to double its internal indium phosphide production capacity by the end of 2026. It has already mass - produced three key transceiver components, namely EML, continuous - wave lasers, and photodetectors, on this production line, providing strong support for the large - scale delivery of the CPO business.

Meanwhile, Coherent ensures supply security through a combination of "internal production capacity expansion + external supplier procurement". It is expanding its module assembly production capacity in Malaysia, Vietnam, and other places, building a global flexible supply chain system to fully meet the continuously rising demand for CPO. It is worth noting that the order - to - shipment ratio of Coherent's data center business has exceeded four times. Customer orders have filled up the whole of 2026, and most of the orders are scheduled until 2027 and are even expected to extend to 2028. This long - term order cycle fully demonstrates the downstream customers' long - term confidence in CPO and related optical interconnection products.

It is worth noting that Coherent clearly defined the market positioning of CPO in the earnings conference call, completely clarifying the market's misunderstanding of CPO and pluggable optical modules and further highlighting the huge incremental potential of CPO. Its CEO clearly stated that the core value of CPO is "incremental" rather than "replacement", and the two will develop in parallel and perform their respective functions. At least within this decade, 800G and subsequent 1.6T pluggable modules will still dominate the Scale - Out (between cabinets) and Scale - Across networks for a long time and will maintain strong growth in the next few years. Although CPO will be initially deployed in the Scale - Out scenario, its real big opportunity lies in the Scale - Up (within the rack) scenario, and there is an "order - of - magnitude" difference in the market size between the two. The core reason is that currently, almost 100% of the interconnection solutions in the Scale - Up scenario are electrical interconnections. Once optical interconnections are introduced, it will all be new market space, which is a huge blue ocean of pure incremental for the entire optical industry, and this is also the core direction of Coherent's key layout.

Currently, Coherent has carried out in - depth cooperation with multiple customers on CPO - related solutions for the Scale - Up scenario. Judging from the forecasts provided by customers, the market size of this scenario is extremely large and difficult to quantify, and it is expected to become the core driving force for the future growth of CPO.

Looking forward, Coherent's management expects that fiscal years 2026 and 2027 will both be years of strong growth for the company. The large - scale production of new products such as CPO and OCS (optical circuit switching) will be the key growth drivers, and the revenue growth rate in fiscal year 2027 will exceed that in 2026, highlighting the broad prospects of the CPO industry.

Meanwhile, Coherent