CITIC SEC: Maintaining the "stronger than market" rating for the telecommunications industry, focusing on the opportunities for scaling up network development.

CITIC SEC released a research report stating that it maintains a rating of "stronger than the market" for the communication industry. Against the background of the evolution of AI large models to MoE architecture, the extreme requirements of computing power clusters for Scaleup networks make NPO technology a key breakthrough for all-optical interconnection. Currently, technology giants such as Alibaba and Tencent are accelerating their bets on this route, and this technological evolution is profoundly restructuring the industry chain, giving early movers a high premium on technology. With the continuous high prosperity of the AI industry and the active promotion of NPO implementation by giants, domestic leading optical communication companies are expected to take advantage of their deep accumulation in high-speed interconnection fields to achieve dual growth in value and profitability. The main points of CITIC SEC are as follows: AI large models are driving network transformation, highlighting the advantages of NPO technology. Under the current wave of generative AI, large-scale model architectures are gradually evolving from Dense to MoE, presenting unprecedented extreme challenges to Scaleup interconnected networks in terms of bandwidth density and communication latency. With the underlying SerDes technology evolving to 224G or even 448G, the signal attenuation from traditional copper wires or long-distance PCB traces has approached physical limits. Compared to high-power traditional pluggable optical modules and the high maintenance difficulty and manufacturing barriers of CPO (common package optics) solutions, NPO (near package optics) exhibits a strong feature of "lowest common denominator." By moving the optical engine closer to the exchange chip on the same substrate, NPO significantly shortens the distance of signal transmission, reduces power consumption, and preserves the independent replaceability of the optical engine while balancing signal integrity and maintainability. Technology giants are accelerating their entry, with Alibaba's UPN512 architecture leading the implementation of all-optical interconnection. Currently, leading CSP vendors are accelerating the implementation of NPO-related solutions. Alibaba has officially released the "UPN512 Technical Architecture White Paper," aiming to build a 512 xPU full interconnection system through a single-layer Ethernet optical connection, which is expected to reduce optical interconnection costs by more than 30%. As the core of the architecture, Alibaba has successfully lit up the 3.2TNPO module, which supports silicon photonics and VCSEL technology, with a typical TDECQ of only 1.9dB and power consumption of only 20W. It has already been applied in the new generation of domestically produced four-chip switches. In addition, Tencent is actively exploring the evolution of NPO based on silicon photonics technology and, together with Alibaba, has initiated a standardization project in ODCC, with the expected prototype system-level activation in the third quarter of 2026, marking a new stage in the engineering implementation of all-optical interconnection. Transitioning to a "provider of optical interconnection solutions," domestic optical module manufacturers are facing a historic opportunity. The accelerated layout of Internet giants such as Alibaba and Tencent signifies that NPO technology has officially entered the stage of commercialization on a large scale, which will also profoundly reshape the business model and supply chain pattern of the optical communication industry. NPO requires optical module manufacturers to have strong silicon photonics integration capabilities, high-precision packaging processes, and deep synergy with chip manufacturers, driving manufacturers to transition from "providing modules" to cross higher technological barriers of "optical interconnection solutions." Leading domestic companies are seizing this historic opportunity: Zhongji Innolight has demonstrated the OpenSocket NPO solution and is expected to deploy it on a large scale by 2027; Eoptolink Technology Inc. has launched an NPO optical engine based on VCSEL to improve space utilization; Hgtech's 3.2T NPO optical engine is also expected to achieve large-scale commercial applications by 2026. Risk factors: AI investment falls short of expectations; intensified market competition; progress in new products such as 1.6T falls short of expectations; technological roadmap risks; geopolitical risks; excessive release of production capacity.