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The 2026 OFC Conference reignites the US stock optical communication sector! Lumentum and Coherent surged against the market overnight. What signal did this conference send?

Recently, the 2026 Optical Fiber Communication Conference and Exhibition (OFC) officially kicked off at the Los Angeles Convention Center, featuring appearances by optical communication giants such as Lumentum, Coherent, and AAOI.

This year's OFC sent a strong signal:The explosive growth in AI computing power demand is pushing data centers to comprehensively reconstruct their optoelectronic network architectures.During the conference, the debate over 'CPO architecture versus pluggable optical modules' and the rise of 'OCS (optical circuit switching) as a key supplementary layer technology' became the focus of attention.

The OFC 2026 conference focused on signaling the demand for AI infrastructure, while optical communication-related stocks surged collectively overnight despite market headwinds, $Lumentum (LITE.US)$、 $Applied Optoelectronics (AAOI.US)$with cumulative gains exceeding 7%, $Coherent (COHR.US)$、 $Ciena (CIEN.US)$and some rising over 4%.

Facing the intersection of technological pathways and capacity challenges, this article will provide fellow investors with an in-depth breakdown of the key highlights from this conference, allowing you to understand everything in one read:

Industry Overview:What is the future outlook for the overall optical communication industry?

Demand Evolution:Under the sweeping wave of AI, what new trends are emerging in data center network connectivity?

Technological Competition:Regarding two cutting-edge technologies, CPO and OCS, what are the differing viewpoints and areas of consensus among the leading companies?

Path to breakthrough:What are the core bottlenecks in the current supply chain? How will companies break through this situation?

Forward-looking strategy:What investment highlights are hidden in the latest business goals announced by various companies?

What is the overall future outlook for the optical communication industry?

According to Morgan Stanley’s previous article, driven strongly by AI data center Scale-out (horizontal expansion), Scale-up (vertical expansion), and Scale-across (cross-data center expansion) architectures,The global AI optical module TAM is expected to surge nearly threefold within three years — from approximately $18 billion in 2025 to about $50 billion in 2028.

Companies in the optics sector have generally reported record-high visibility of customer demand and extended order cycles.

In response to the 'optics vs. copper' debate, Lumentum also provided a graphical response. As AI cluster bandwidth moves from 800G to 1.6T and even 3.2T,The effective transmission distance of copper interconnects rapidly shrinks, while optical interconnects will penetrate from 'cross-rack' to 'within-rack'.

Amid the AI wave, what new trends are emerging in data center network connectivity?

1. 'Scale-across' across data centers becomes a core trend:Due to power density limitations, AI infrastructure is expanding from single data centers to cross-campus and cross-regional deployments.

2. Surge in bandwidth demand:Under this expansion model, network bandwidth demand is 14 times that of traditional Wide Area Networks (WAN) and even 500 times that of server-to-server (scale-up) connections.

3. Competitive landscape: $Ciena (CIEN.US)$ and $Cisco (CSCO.US)$ Companies are actively positioning themselves, $Cisco (CSCO.US)$ with NVIDIA even launching 'multi-rail' products to directly compete with Ciena.

4. Prominence of traditional service providers:It's no longer just the stage for hyperscale cloud vendors. Traditional telecom operators, leveraging their existing fiber assets and rights-of-way, are becoming increasingly important in supporting geographically distributed AI infrastructure.

What are the divergences and consensuses among companies regarding the two cutting-edge technologies, CPO and OCS?

CPO (Co-Packaged Optics):

$Cisco (CSCO.US)$Market enthusiasm is believed to have cooled,Pointing out that customer enthusiasm is not as strong as last year, large-scale adoption may have to wait until 400G SerDes matures.

$Lumentum (LITE.US)$The perspective is more refined,It stated that in the short term, the opportunity lies in CPO between racks (Scale-out), while in the long term, it’s within-rack (Scale-up) CPO, with the latter’s market size being 3-4 times that of the former, but is expected to take off by the end of 2027.

OCS (Optical Circuit Switching):

$Coherent (COHR.US)$and$Lumentum (LITE.US)$Extremely optimistic,Coherent has doubled its TAM forecast from $2 billion to $4 billion. Lumentum views OCS as its most direct growth driver, aiming for over $1 billion in annualized revenue by 2027.

Cisco, on the other hand, remains cautious:It believes that OCS accounts for only a small share of the overall optical market, and is currently choosing to monitor the market and startups rather than making direct investments.

What is the core bottleneck in the supply chain right now? How will companies break through this challenge?

Cisco believes that the focus of the bottleneck is shifting, with concerns moving from“whether supply can be secured” to “the pricing/cost of supply.”

However, in fact, the key constraint remainslasers,and the current core strategy for these optical communications companies isactive capacity expansion + locking in long-term agreements,。

$Coherent (COHR.US)$ → planning to expand InP laser production capacity by more than four times in the coming years.

$Fabrinet (FN.US)$ → heavily investing in capacity expansion to prepare for growth over the next 15-20 years.

$Ciena (CIEN.US)$ → Steadily advancing long-term supply agreements to ensure supply visibility for the coming years.

What investment highlights are hidden in the latest business goals announced by various companies?

$Lumentum (LITE.US)$: Extremely optimistic, with core optical chip production capacity fully strained.

Capacity and demand imbalance: EML capacity is expected to grow by over 50% by the end of 2026 compared to the end of 2025; demand for indium phosphide (InP) chips will maintain a CAGR of up to 85% from 2026 to 2030,The company’s current production capacity is seriously lagging behind and remains in a state of persistent shortage.

High-power light source boom: For the 350mw high-power CW light source (UHP Laser Chip), plans are underway to expand production at the UK plant by mid-2027, with an expected shipment volume CAGR exceeding between 2025 and 2030.200%。

Market space (TAM): Optical communication TAM is expected to achieve fivefold growth between 2025 and 2030.Incremental growth will be mainly driven by Scale-out (accounting for 55% of bandwidth growth) and Scale-up (45%). Additionally, OCS (optical circuit switch) demand is projected to have a CAGR of over 150% from 2025 to 2028.

Technical roadmap: Remains strongly optimistic about the commercial prospects of CPO.

$Coherent (COHR.US)$: Full production expansion, targeting a new market worth hundreds of billions

Billion-dollar incremental market (SAM):The company's current growth engine SAM is $50 billion. It is projected that by 2030, the additional SAM will exceed $20 billion. Including:

CPO SAM will exceed $15 billion;

OCS switch SAM has been raised to $4 billion (previously estimated at only $2 billion);

DCI module SAM will reach $6 billion by 2030.

Aggressive production expansion:To meet the surging demand, InP (Indium Phosphide) laser capacity will expand more than fourfold in the coming years.

$Applied Optoelectronics (AAOI.US)$: Ultimate production capacity guidance, optimistic earnings outlook

Ultimate production capacity guidance: Paints an explosive expansion blueprint targeting 650,000 units/month (800G+1.6T) by Q4 2026,with total production capacity reaching 930,000 units/month by the end of 2027(including 550,000 units of 800G OSFP and 380,000 units of 1.6T OSFP).

Optimistic earnings outlook:Based on the company’s quarterly unit production capacity and average selling price (ASP) assumptions, this plan implies quarterly revenue of approximately $1.4 billion by Q4 2026; around $1.5 billion by Q2 2027; and over $2.1 billion by Q4 2027, mainly driven by the 800G, 1.6T, and ELSFP product lines.

$Cisco (CSCO.US)$ : Proceeding steadily, becoming cautiously optimistic about the short-term prospects for CPO

Technical roadmap divergence:Similar to Arista's stance, Cisco believes that the industry’s optimism towards CPO is beginning to wane.

Core Moat:Highlighting its absolute leadership in the ZR (coherent optics) market, having shipped over 700,000 units of 400G ZR modules and 200,000 units of 800G modules cumulatively.

Bandwidth Demand Insight:Internal calculations show that bandwidth demand within data centers far exceeds that of Wide Area Networks (WAN). Specifically, Scale-across is 14 times WAN, Scale-out is 50 times WAN, and Scale-up is a staggering 500 times WAN.

$Fabrinet (FN.US)$ : Production capacity continues to ramp up, with core supply chain bottlenecks expected to ease

The company stated it is actively and proactively expanding production capacity to ensure staying ahead of customer demand. The capacity roadmap is as follows:

Current→ Annualized revenue (run-rate) between $4.6 billion and $4.8 billion, actual capacity approximately$5.5 billionUSD.

By the end of 2026 → Upon completion of the new Building 10, total capacity will reachApproximately $8.5 billionUSD.

In the future → The Chonburi Industrial Park in Thailand still has land available to build two more factories, with a potential total production capacityReaching up to $11.5 billion。

It stated that the downside risk of the expansion decision is extremely low.For example, the construction cost for the additional $3 billion in production capacity (Building 10) is only approximately $130 million, and five months of operating profits at full capacity would be sufficient to cover it. Even if left idle, the impact on gross margin would only be around 15 basis points.

Additionally, the EML supply bottleneck, which previously constrained NVIDIA’s 200G module shipments, is improving,But will remain a primary limiting factor until mid-year.With Lumentum being introduced as a second supplier, the tight EML supply situation is expected to ease significantly in the third quarter of this year (September quarter).

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