In the first half of 2026, the optical communications industry chain will expand and accelerate, and projects exceeding 40 billion yuan will be intensively advanced.

In 2026, as the scale of AI large model data increases exponentially, the requirements for AI clusters for computing power density will reach unprecedented heights, and the demand for data transmission between and within cabinets will simultaneously increase. In this context, optical communication technology, as the core transmission link of computing power networks, has its strategic position upgraded from traditional supporting support to a key factor in determining the expansion speed of the AI industry.

From the perspective of supply and demand in the industry chain, the optical communications industry is currently experiencing a capacity expansion cycle that is transmitted from terminal demand to the upstream. The accelerated deployment of downstream cloud service providers has driven a surge in demand for high-speed optical modules, optical devices, optical chips, and key substrate materials such as indium phosphide.

Based on incomplete statistics from public information, TrendForce has sorted out the project trends in the upstream indium phosphide substrates, optical chips, mid-stream and downstream optical modules and CPO fields of the optical communications industry chain in the first half of 2026.

The layout of indium phosphide substrate production capacity is accelerated, and 13 projects are intensively advanced

Indium phosphide is a key basic material for optical communication chip manufacturing. Its wafer quality and supply stability directly affect the performance and output of core devices such as lasers and detectors. Driven by the continued rise in demand for high-speed optical interconnection in AI data centers, the strategic value of indium phosphide substrates has become increasingly prominent, and upstream and downstream companies in the industry chain have increased their deployment.

According to incomplete statistics from TrendForce Optical Communications, a total of 13 indium phosphide-related projects have made substantial progress in the first half of 2026, covering substrate production, wafer production line expansion, and epitaxial wafer material industrialization. Most of the projects are located in Jiangxi, Hubei, Yunnan, Jiangsu, Zhejiang, Guangdong and other Chinese provinces. Overseas, some manufacturers are also expanding production capacity simultaneously.

From the perspective of investment scale, the high-end compound semiconductor materials and chip industrialization base invested by Pilot Technology Group with an investment of 12 billion yuan is the largest among all projects. The main structure of the project was capped in January. After the project is completed, it will have the production capacity of gallium arsenide substrates, indium phosphide substrates, germanium wafers, tunable lasers, detectors, Y waveguides, optical fiber rings and other products. After reaching production, it is expected to have an annual output of 390,000 gallium arsenide and indium phosphide substrates, 230,000 epitaxial wafers, 40,000 chips and hundreds of thousands of various optoelectronic devices, mainly for optical communications, intelligent sensing, infrared imaging, quantum information and other fields.

In May, Hubei Pilot New Materials, which is indirectly controlled by Pilot Technology Group, promoted the environmental impact assessment of the industrialization project of indium phosphide and gallium arsenide epitaxial substrate materials. Lead Microelectronics, also a subsidiary of Lead Technology Group, invested 2 billion yuan in the construction of a high-end compound semiconductor substrate production line project and completed investment registration in July. These projects may form synergies with Lead Technology Group in the future.

Not only are Chinese companies actively expanding production, but in the face of indium phosphide being in short supply and prices soaring in the global market, overseas companies are also stepping up their efforts to expand indium phosphide production to meet the strong demand brought about by the development of downstream AI.

As one of the major players in the AI field, technology giant Nvidia pays special attention to the supply of communication interconnection devices for data centers. Therefore, in June this year, Nvidia and the compound semiconductor company Coherent broke ground on a new factory in Sherman, Texas, USA. The new factory will expand the production capacity of 6-inch indium phosphide wafers. In this way, NVIDIA ensures a stable supply of upstream materials for high-speed optical communication devices in the future.

Investment in optical communication chip production capacity is booming

In the optical communication industry chain, optical communication chips are the core components of optical modules, mainly including laser chips, photodetector chips, modulator chips, etc. Their performance directly determines the transmission rate, power consumption and reliability of the optical module. As the transmission rate upgrades from 100G to 400G and even 800G, optical communication chips are undergoing changes in the technical route and manufacturing process. Silicon photonics technology and compound semiconductor technology have become the two mainstream directions.

In the first half of 2026, seven optical communication chip-related projects have made new progress, involving a total investment of nearly 15 billion yuan. Among them, many projects are related to silicon photonic chips.

It is reported that silicon photonics technology integrates photonic devices and CMOS processes, and integrates optical components on a single chip to continue the advantages of scale manufacturing to reduce costs and complexity. In the context of the surge in demand for AI computing power, its high bandwidth, low latency, and high energy efficiency characteristics have become the key to breaking through the communication bottleneck of data centers. The industry is accelerating its evolution from electrical interconnection to optical interconnection, and companies such as Nvidia, Credo, and GlobalFoundries have intensively deployed in the field of silicon optical communications.

Faced with the demand for silicon photonics technology, domestic companies such as StarKey Photonics, Xilian Optical Core, Senxin Semiconductor, and Xinlian Integration have started the construction of related R&D and production capacity projects.

Among them, the country's first 8-inch silicon photonic chip mass production line built by Starkey Photonics started construction in March. The investment scale of the project reached 5 billion yuan. It plans to build an 8-inch 90-nanometer silicon photonics production line and a heterogeneous integration platform. After completion, it will have the ability to produce 60,000 silicon photonic integrated chips per year.

In addition, the Wuhan silicon photonic chip project with an investment of 1.5 billion yuan by Minxin Semiconductor also started construction in May. The project is expected to be fully completed in July 2027, and the equipment debugging will be completed and officially put into production by the end of September of the same year.

It is also worth noting that in addition to the projects listed in the table above, there are actually a number of large-scale integrated optical communication projects that also involve the manufacturing of optical chips. Companies hope to build production lines that can connect upstream and downstream to form a self-owned supply chain or a more convenient optical communication industry ecosystem.

For example, Dongshan Precision announced in June that it would invest 8.1 billion yuan to build Source Photonics optical chip and optical module expansion project, involving high-end optical chip and high-speed optical module production capacity, covering 800G, 1.6T and other products.

In April, InnoLight, a subsidiary of the leading optical module company Zhongji InnoLight, took the lead in signing a contract to establish the Suzhou Optical Communications Industry Base in Suzhou Industrial Park with a number of optical communications companies. The project will invest 5 billion yuan, focusing on core links such as optical chips, optical materials, optical devices, and optical modules, to create an optical communications innovation cluster integrating R&D, manufacturing, and achievement transformation.

Optical modules and CPO projects have become the focus of investment, with Chinese manufacturers leading global production capacity expansion

As the core device for photoelectric signal conversion, optical modules play an indispensable role in internal interconnection of data centers, cluster interconnection and long-distance transmission.

Currently, the global optical module industry shows obvious regional agglomeration characteristics. China has become the main production base of optical modules in the world by virtue of its complete industrial chain supporting and manufacturing advantages. As higher-speed products such as 800G and 1.6T gradually become the mainstream of the market, domestic optical module companies are accelerating capacity expansion and technology upgrades.

In the first half of 2026, a total of 9 optical module-related projects within the statistical scope have made new progress. Among them, Dongshan Precision announced the investment and construction of multiple projects.

In addition to the 8.1 billion yuan investment in Source Photonics' optical chip and optical module expansion project mentioned above, in June this year, Dongshan Precision also announced an investment of 1 billion yuan in a high-speed optical module device manufacturing technology transformation project, creating an annual production capacity of 5 million high-speed optical module devices.

Currently, Dongshan Precision is rapidly developing its optical communications business. In the future, with the completion and commissioning of the above projects, Dongshan Precision’s optical communications business layout will be further improved, forming a vertically integrated layout of "independent supply of optical chips + optical module packaging and manufacturing".

Faced with the rapid growth in demand for optical modules, companies such as Dongshan Precision are actively making cross-border deployments, and the investment in production expansion by leading optical module companies cannot be underestimated. Zhongji InnoLight, Huagong Technology, and Guangxun Technology are all expanding their optical module production capacity this year.

In addition to the Suzhou optical communications industry base project led by its subsidiary InnoLight Technology in April, the first and second phases of the optoelectronic industrial park invested 1.12 billion yuan by Tongling InnoLight, a subsidiary of InnoLight, also reported new progress in environmental assessment in June. The project will have an annual production capacity of 8 million optoelectronic devices in the future and is expected to be completed and put into production in July 2026.

Also in June, the second phase of Huagong Technology Optoelectronics Research and Innovation Park was under construction, with an investment of 1.2 billion yuan, involving the construction of 1.6T and 3.2T high-speed optical module production lines and overseas packaging production lines.

Guangxun Technology completed a private placement of funds for a high-end optical communication device production and construction project in June. The project plans to invest 2.482 billion yuan to form an annual production capacity of 4.992 million high-speed optical modules and other products.

In addition to optical module projects, companies are also investing in more cutting-edge technologies, especially the CPO and NPO technology fields that have become very popular this year.

TrendForce pointed out that currently, the three major technical routes of LPO, NPO and CPO are receiving industry attention simultaneously. Among them, NPO has become the preferred solution for cloud service providers such as Alibaba, Tencent, Meta, and Microsoft in the near and medium term due to its advantages of shortening the electrical transmission distance, retaining modularity, and the flexibility of multi-supplier competition. CPO is more suitable for medium and long-term application scenarios with high power consumption, high density, and high integration. CPO solutions represented by the NVIDIA ecosystem are accelerating the commercialization process.

Statistically, related projects are gradually increasing. TrendForce predicts that the CPO and NPO market size will experience explosive growth from 2028 to 2029 as the Scale-Up architecture begins to be introduced into optical interconnection, and the overall market size will exceed US$39 billion by 2030.

Facing the growing demand for optical communication technology in the future, in May this year, Guangxun Technology invested 1 billion yuan in high-speed optical interconnection and emerging optoelectronic technology research and development projects to complete fundraising, focusing on the development of 3.2T CPO and NPO optical engines.

Dongshan Precision announced in June that it would invest 223 million yuan in the construction of a CPO technology product research and development and industrialization project, with a planned annual output of 4,800 CPO products.

Summary

Taken together, the upsurge in expansion of the optical communications industry chain in the first half of 2026 reflects the industry’s strong confidence in the construction of AI computing power infrastructure. From indium phosphide substrates to optical chips and optical modules, to emerging technology routes such as CPO and NPO, the production capacity layout of the entire optical communications industry chain is accelerating and improving, which will lay a key foundation for the continued scale growth of the AI industry in the next few years.