Optical Module Shares Slide as Investors Weigh CPO Expansion and Demand

Highlights

On October 22, Chinese optical-module leaders fell sharply: Eoptolink (新易盛) dropped nearly 11% to 262.3 yuan, Innolight (中际旭创) fell 8% to 595 yuan, and TFC Communication (天孚通信) lost more than 7%. The declines followed news that NVIDIA plans a major expansion of co-packaged optics (CPO) optical-engine capacity with Taiwan-based SPIL. Meanwhile, earnings and demand indicators remain strong: the three companies reported combined first-half 2026 net profit attributable to shareholders of about 223.84 billion yuan. The central tension is between near-term valuation and supply-chain concerns and continued growth in data-center demand.

Sentiment Analysis

• Negative near-term market tone: The article opens with steep share-price declines and new lows for two leading companies. The reported pullbacks from yearly peaks—57% for Eoptolink and 58% for Innolight—underscore investor caution.


• Neutral supply-chain uncertainty: NVIDIA’s capacity announcement emphasizes partners outside mainland China, prompting speculation about a divide between existing products and next-generation CPO. However, the article also notes that domestic suppliers are pursuing development and validation work, and that TFC Communication has had a role in NVIDIA’s CPO supply chain.


• Positive operating fundamentals: Reported profits and revenues increased, while forecasts for 1.6T module shipments and cloud-company capital spending were raised. Analysts cited in the article also see the U.S. restrictions as limited in near-term impact.


• Overall assessment: Sentiment is mixed, with negative price action offset by favorable earnings and demand signals. The article presents a cautious but not uniformly bearish picture, rather than asserting that a recovery is certain.

Article Text

Optical-module stocks in China came under heavy selling pressure on October 22. The decline affected the group’s prominent “Yi Zhong Tian” names: Eoptolink (新易盛), Innolight (中际旭创), and TFC Communication (天孚通信). Eoptolink fell nearly 11% to 262.3 yuan, its lowest level since March, and stood 57% below its peak for the year. Innolight fell 8% to 595 yuan, its lowest level since April, and was 58% below its yearly high. TFC Communication declined by more than 7%.

The immediate focus was NVIDIA’s announcement at the GTC Berlin conference. The company said it would substantially expand capacity with six supply-chain partners. One plan drawing particular attention involves cooperation with Taiwan-based SPIL to increase production capacity for optical engines used in co-packaged optics, or CPO, to 15 times its current level by mid-2027. NVIDIA plans to double that capacity again by the end of 2028. Some observers interpret the absence of mainland Chinese manufacturers among the announced expansion partners as a possible sign that established products and next-generation technologies may develop along different supply-chain paths.

The announcement has not erased signs of existing links between the companies and CPO-related production. When NVIDIA announced in August that its CPO switches had entered full-scale production, it identified TFC Communication as responsible for packaging and assembly of laser-module subcomponents. The source also says that major domestic companies are actively undertaking customized development or submitting samples for verification. These details indicate that the relationship between current suppliers and future CPO production remains an important question, rather than a settled conclusion.

Recent financial results provide a counterpoint to the share-price weakness. According to iFinD data, in the first half of 2026, the three companies together recorded about 223.84 billion yuan in net profit attributable to shareholders and about 655.16 billion yuan in operating revenue. Innolight reported net profit attributable to shareholders of 136.51 billion yuan, up 241.70% year over year. Eoptolink reported 75.29 billion yuan, up 91%, while TFC Communication reported 12.04 billion yuan, up 33.93%. The reported figures show substantial growth, although they do not by themselves determine future share performance.

Demand forecasts also remain supportive. A September Goldman Sachs report raised its estimate for global 1.6T optical-module shipments in 2027 from about 46 million units to 71 million units. It also increased its forecast for total global optical-module shipments by 21% to 31%. China Securities Construction Investment said guidance for full-year 2026 capital expenditure by four major North American cloud providers had risen to 720 billion to 745 billion U.S. dollars. These estimates connect expected module demand to continued investment in data centers and cloud infrastructure.

U.S. regulatory restrictions have been another source of concern. On September 11, the Federal Communications Commission (FCC) formally issued the rule “Protecting the U.S. Communications Supply Chain from Foreign Adversaries,” which took effect on October 13. The article says the restriction applies to components produced by entities on the Covered List. The three optical-module companies are not on that list, and optical modules appear only as an example in the text of the rule.

A Morgan Stanley report dated October 1 estimated that the restrictions are more likely to affect 3.2T optical modules. It said a draft rule could begin as early as October 2026 and noted that the rule includes an approximately two-year transition period. The report estimated that Innolight and Eoptolink have combined annualized capacity of about 101 million units, more than 8 times that of U.S. manufacturer AAOI. It concluded that U.S. domestic capacity could not replace the relevant supply in the short term.

Valuation and past share-price declines are also part of the debate. A Huafu Securities strategy report dated October 13 said the maximum full-year drawdowns for Innolight and Eoptolink were 48% and 43%, respectively, close to their average levels from 2021 through 2025. The report attributed the declines to the unwinding of crowded AI trades, lower valuations associated with falling U.S. Treasury yields, and FCC-related concerns. It expected lower U.S. Treasury rates in the fourth quarter to support a valuation recovery in core AI assets.

Some brokerages continue to publish higher price targets. Goldman Sachs resumed coverage of Innolight’s A shares in September with a “Buy” rating and a 2,645-yuan target price. Huayuan Securities, in its initial coverage, forecast 2026 net profit attributable to shareholders of 362.10 billion yuan for Innolight. Based on the current share price, that estimate implies a price-to-earnings ratio of about 21 times, compared with an average of 49.11 times for the comparable companies selected by the brokerage. These views contrast with the recent declines, but they remain analyst estimates rather than guaranteed outcomes.

Taken together, the article describes a market caught between strong reported growth and concerns about valuation, regulation, and the location of future CPO capacity. The share-price decline is substantial, while the cited forecasts and analyst assessments point to continued demand and potential support. Whether those fundamentals outweigh near-term uncertainty depends on how supply chains, investment, and market expectations evolve.

Key Insights Table