Morgan Stanley Optical: Optical Content Growing Regardless of Architecture
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Morgan Stanley argues that optical content will continue expanding regardless of whether data centers adopt Ethernet or InfiniBand architectures. The sustained bandwidth requirements of AI training and inference clusters are driving a transition from 800G to 1.6T optical modules, with 1.6T shipments projected to surpass 800G by 2026.
Several emerging technologies should accelerate adoption while improving cost and power efficiency. CW-WDM reduces cost per bit for data center interconnects, while LPO eliminates DSP chips to lower power consumption and latency, with meaningful deployment expected in 2026. Silicon photonics is forecast to capture over 30% market share by 2027.
The global optical module market is projected to reach $18 billion in 2026, representing 25% year-over-year growth. Chinese manufacturers are expected to exceed 50% global market share that year. Meanwhile, 800G module pricing is anticipated to decline 20-30% during 2026.
Morgan Stanley covers multiple companies with specific ratings. Inzhong Xu Chuang holds an Overweight rating with a target price of 180 yuan, benefiting from 1.6T ramp. Eoptolink maintains an Overweight rating at 120 yuan, leveraging LPO leadership. T&S Communications is rated Overweight at 150 yuan as an optical engine component supplier. Accelink holds an Equal-weight rating at 40 yuan. Among US names, Coherent carries an Overweight rating at $100, while Lumentum is rated Equal-weight at $60 facing competitive pressures.
The core thesis remains that optical content increases irrespective of network architecture timing or specific technology pathway chosen.
Key exhibits
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