Shenwan Hongyuan Group: The boom in demand for indium phosphide driven by photon module upstream revalues the value of indium resources.

Shenwan Hongyuan Group released a research report stating that the demand for optical modules will continue to grow with the vigorous development of AI. The demand for optical modules, as an important physical carrier of optical interconnection technology, will experience significant growth, and indium phosphide substrate, as an important raw material for optical modules, will also be significantly driven. Indium phosphide substrates, with their excellent physical and chemical properties, will play a major role in the future use of optical modules. As the demand for indium phosphide substrates is transmitted upstream, the value of indium metal as a strategic mineral resource also urgently needs to be re-evaluated. The main points of Shenwan Hongyuan Group are as follows: Optical interconnection will become the main channel for expanding AI computing power With the rapid development of AI computing centers, the increase in data throughput has posed unprecedented challenges to underlying hardware interconnection. In this context, optical interconnection technology, with advantages such as high bandwidth, low latency, and low power consumption, is expected to become an indispensable infrastructure for the computing power era of the future. Optical interconnection technology in the AI computing center scenario specifically includes linear drive pluggable modules (LPO), optoelectronic shared seal (CPO), and other core technology directions. The demand for optical modules will continue to grow with the vigorous development of AI On February 3, 2026, the market research institute LightCounting in the optical communication industry presented sales forecasts for Ethernet optical modules (starting from 100G) and CPO for AI clusters in its latest market report, and compared them with non-AI application scenarios, predicting that the market size will reach 16.5 billion dollars in 2025 and grow to 26 billion dollars in 2026. This represents a 60% year-on-year growth in both 2025 and 2026. The demand for indium phosphide substrates as an important raw material for optical devices will surpass linear growth As mentioned earlier, optical interconnection technology will become the main channel for expanding AI computing power, and therefore the demand for optical modules, as an important physical carrier of optical interconnection technology, will experience significant growth. Indium phosphide substrate, as an important raw material for optical modules, will also be significantly driven, giving indium phosphide linear growth. The second logic is the surge in demand for indium phosphide due to the continuous iteration of optical links The 1.6T optical link will be the next development direction. Each speed upgrade will not only double the bandwidth but also increase the complexity of the technology: 800G transceivers generally use four optical channels, while 1.6T modules require eight. Each channel requires independent indium phosphide substrate transceivers. Therefore, as the industry transitions from 800G to 1.6T, the amount of InP used in each optical module almost doubles. Indium metal as an upstream resource has important strategic value Critical Minerals usually refer to non-fuel minerals that are crucial to economic and industrial development, and supply disruptions will have significant impacts on economic security and national security. Several minerals are considered critical/strategic minerals by the United States, the European Union, Japan, and China: antimony, beryllium, bismuth, cobalt, gallium, germanium, hafnium, indium, lithium, niobium, tantalum, titanium, tungsten, vanadium, platinum group metals, and rare earth elements. The demand for indium is steadily increasing, and indium phosphide will become the key driver of demand growth As the localization rate of ITO target materials increases year by year, and as indium is increasingly used in emerging fields such as photovoltaic heterojunction cells and compound semiconductors, the consumption structure of global indium is undergoing profound changes. It is expected that the demand for indium in China and globally will be stably supported in the future, and subsequent demand space will be further opened up for indium phosphide substrates. According to our calculations, the demand for indium will be driven by 6.77% in the field of indium phosphide by 2027. Risk warning: Risks of changes in technology routes, macroeconomic events leading to reduced liquidity risks, and unexpected changes in indium supply.