Optical Communications Boom: NPO/XPO Technology Mass Production Reshapes A-Share TMT Sector

Optical Communications Industry Chain Explosion: Structural Upgrades Drive a Fundamental Restructuring of A-Share TMT Indices

In early April, the ChiNext Index surged over 1% in a single day—reaching a new all-time high not seen in nearly 11 years. This rally was not driven by broad-based tech-theme speculation, but rather ignited by dual breakthroughs—both financial and technological—at Zhongji Xunxun, a core enterprise in the optical communications industry chain. The company reported a staggering 262% year-on-year surge in Q1 net profit, with revenue nearly tripling. This performance directly catalyzed strong gains across upstream suppliers—including Tianfu Communications, Xinyi Sheng, and Shenghong Technology. Crucially, Zhongji Xunxun’s independently developed NPO (Near-Packaged Optics) and XPO (Extended-Package Optics) optical module technologies have already secured definitive mass-production timelines and technical specifications from leading global cloud service providers (CSPs), with large-scale delivery expected by 2027. This milestone signals a pivotal transition in AI compute infrastructure—from “chip stacking” to “vertical interconnectivity.” Compute density gains are no longer solely dependent on increasing GPU counts; instead, they hinge on optoelectronic co-design architectures delivering higher bandwidth, lower latency, and superior energy efficiency. Goldman Sachs promptly raised Zhongji Xunxun’s target price to RMB 1,187—up 50% from its prior estimate—and emphasized: “This is not a cyclical rebound—it is a once-in-a-decade bandwidth revolution driving a long-term, structural revaluation of upstream optical components.”

NPO/XPO: The Definitive Solution to AI Data Center Bandwidth Bottlenecks

Traditional pluggable optical modules (e.g., QSFP-DD, OSFP) are nearing their physical limits at 800G/1.6T speeds: power consumption surges (exceeding 25W per module), signal integrity degrades significantly, and thermal management becomes exponentially more challenging. When NVIDIA’s GB200 NVL72 system demands inter-GPU interconnect bandwidth exceeding 100 TB/s, both electrical interconnects (PCIe/CXL) and conventional optical interconnects fall short. Enter NPO/XPO—their core innovation lies in heterogeneous integration of the optical engine and switch ASIC onto a single substrate, reducing the physical distance between optical devices and electrical chips to the millimeter scale. This architecture slashes interconnect power consumption by 40%, cuts latency by 60%, and lowers unit-bandwidth cost by 35%. According to LightCounting’s latest report, NPO/XPO will capture 38% of the global AI data center optical module market by 2027, with a total addressable market exceeding USD 4.2 billion. Zhongji Xunxun has signed joint development agreements with two major North American CSPs; its proprietary silicon photonics chips and co-packaged optics (CPO) platform have successfully completed validation at 200 Gbps per lane, achieving stable yields above 82%—laying solid engineering groundwork for 2027 mass production. For the first time, Chinese enterprises have leapt from “following definitions set abroad” to “co-defining next-generation standards” at the cutting edge of optical communications.

From “Moutai Loses Its Crown” to a Paradigm Shift in A-Share Asset Pricing

On that same trading day, Kweichow Moutai opened down 4.3%, posting its first annual revenue decline since listing—and was briefly surpassed in intraday market capitalization by Yuanjie Technology (RMB 1,410/share), making the latter the new “stock king” of the A-Share market. This dramatic reversal is no mere coincidence—it is a microcosmic reflection of a fundamental paradigm shift in A-Share asset pricing logic. Over the past decade, the “Moutai Index” symbolized predictable consumer-sector tailwinds and formidable brand moats. Today, the rise of the “Optical Communications Index” reflects the acute scarcity of supply-side infrastructure for AI compute—driven by the global AI arms race. Zhongji Xunxun’s quarterly net profit growth (262%) dwarfs Moutai’s historical peak (~30%), shifting its valuation anchor from P/E ratio to P/S (price-to-sales) and, critically, to generational technological leadership. More profoundly, margin financing balances surged RMB 10.7 billion in a single day—with incremental funds overwhelmingly concentrated in niche segments including optical chips (Yuanjie Technology), optical components (Tianfu Communications), and high-speed connectors (Shenghong Technology). This confirms a powerful resonance between industrial capital and leveraged funds—all betting decisively on the foundational axiom: “Bandwidth is compute.” Meanwhile, the Hang Seng Tech Index fell 1% that day, underscoring the lack of similar sectoral consensus in Hong Kong markets—and highlighting how A-Share optical communications clusters have already completed a full valuation upgrade—from thematic concept to demonstrable earnings delivery.

Deepening Industrial Transmission: Comprehensive Upgrades Across the Entire Value Chain

Zhongji Xunxun’s breakout is no isolated event—it reflects coordinated evolution across the entire optical communications value chain. Upstream, Yuanjie Technology’s indium phosphide (InP) laser diode chips have passed CSP certification, with yields now exceeding 75%, breaking decades-long foreign monopolies. Tianfu Communications is rapidly scaling production lines for LPO (Linear Pluggable Optics) and NPO-compatible high-speed optical components—its ceramic ferrules and lens arrays now achieve sub-micron precision. Downstream, Xinyi Sheng ranks among the world’s top three in 800G OSFP module shipments and has already begun sending XPO prototype units for testing. Most critically, breakthroughs are unfolding at the materials layer: Yangtze Optical Fiber and Cable has commenced mass production of low-loss, high-bandwidth multimode fiber optimized for NPO applications; Feilhua has overcome purity barriers in photolithography-grade synthetic quartz glass (metal impurities < 1 part per trillion). This tightly coupled, four-tiered “chip–component–module–material” ecosystem endows China’s optical communications industry with full-stack autonomy. Per MIIT data, China’s optical module exports surged 192% YoY in Q1 2024—with over 65% destined for North American AI customers—signaling simultaneous strengthening of supply-chain resilience and technological sovereignty.

Long-Term Outlook: The Bandwidth Revolution Reshapes TMT Weighting Structures

Goldman Sachs’ upward revision of Zhongji Xunxun’s target price to RMB 1,187 implies a core thesis: optical communications has transcended its traditional role as hardware infrastructure—it is now the new “electricity, water, and coal” of the AI era. With NPO/XPO mass production slated for 2027, optical interconnect costs per AI server will climb from today’s 18% to 33% of total system cost—steadily enhancing the pricing power of optical component vendors. This trend will profoundly reshape the weightings within the A-Share TMT sector: allocations historically dominated by consumer electronics contract manufacturing and software applications are accelerating toward hard-tech domains—including optical chips, high-speed interconnects, and advanced packaging. Looking further ahead, next-generation technologies such as photonic computing and photonic AI chips have already achieved lab-scale breakthroughs—meaning the optical communications industry chain is evolving from supporting compute to defining it. Once bandwidth ceases to be a bottleneck, the true frontier of compute potential opens wide. This revolution—born in optical modules—will ultimately redefine China’s technological industry on the global stage.