In the past two days, the optical communication industry has witnessed a rare "tale of two extremes."

On one front, the capital market is in disarray—a Morgan Stanley report triggered a collective nosedive in CPO concept stocks, with multiple stocks hitting their limit down. On the other, the industrial sector is bustling with activity, as Hengtong Optic-Electric unveils a RMB 6.6 billion private placement, Largan Precision confirms FAU shortages, and hollow-core fibers make their quiet commercial debut.

Sentiment and fundamentals are locked in a fierce tug-of-war.

A "Scenario Projection" Sparks Two 20cm Limit Downs

On October 8, the A-share optical communication sector took a severe beating. Changguang Huaxin and Yuanjie Technology both plummeted by the maximum daily limit of 20cm, Dongshan Precision also hit its limit down, while Shijia Photonics, Tianfu Communication, and others tumbled more than 5%. The entire CPO concept sector turned a sea of red.

The catalyst? A Morgan Stanley research report, which boiled down to a single sentence: Potential FCC regulations might restrict Chinese optical modules in the 3.2T generation. Meanwhile, whispers circulated about downward pricing pressure on 1.6T supporting optical chips.

The confluence of these two negative factors swiftly ignited panic.

However, it's noteworthy that multiple companies swiftly countered the report on the same day.

Changguang Huaxin's response was blunt: The Morgan Stanley report is a "policy scenario projection, not a formally enacted regulation." The company also highlighted a crucial fact—domestic 800G/1.6T optical chips remain in extremely short supply in the short term, with 3.2T mass production not expected until 2028-2029. In essence, even if policies are enacted, the impact is still years away.

Dongshan Precision remained equally composed, dismissing the rumors as "unofficial market speculation" and revealing that the company has proactively deployed multi-regional production capacity and diversified supply chain solutions, with "overall impact controllable" if policies are enacted.

The market's overreaction merely underscores the fragility of sentiment in the current optical communication sector. But the industrial sector's true pulse tells a different tale.

RMB 6.6 Billion Private Placement in Optical Communication: What is Hengtong Optic-Electric Betting On?

On the same day as the sector's plunge, Hengtong Optic-Electric announced a RMB 6.636 billion private placement plan, with RMB 3.148 billion earmarked specifically for the optical communication sector.

Where will this funding go? It will primarily support five major projects, including CPO packaging and AI optical interconnects. The most striking allocation is the RMB 1.051 billion earmarked to expand annual production capacity of 63 million FAU (Fiber Array Unit) units.

What is an FAU? Simply put, it's an indispensable optical coupling component in silicon photonics modules and CPO optical engines. For CPO to package optical engines and switching chips together, the FAU serves as the critical "interface" connecting external optical fibers to the chip's optical pathways. As CPO transitions from labs to mass production, FAU demand will surge exponentially.

Hengtong Optic-Electric's bold move to ramp up production at this juncture sends a clear signal: The window for CPO industrialization is opening, and a supply gap in upstream components looms.

Largan Precision Confirms for the First Time: FAU Module Shortages, Mass Production Next Year

If Hengtong's private placement is a "preemptive bet," then Largan Precision's announcement is a "on-the-ground confirmation."

This optical giant, best known for smartphone lenses, had its chairman Lin Enping publicly confirm for the first time that the company's CPO business has expanded from fiber arrays (FA) to FAU modules, revealing a critical detail: Both FA and FAU products are currently in short supply.

In terms of progress, Largan Precision's FA pilot production line has passed certification with one client, and FAU module mass production lines are expected to be completed by the end of Q2 next year. This means Largan's FAU modules will officially enter the supply chain by mid-2027 at the latest.

The entry of a consumer electronics optical leader into this field underscores the expanding appeal of the CPO industrial chain. The word "shortage" further reassures upstream component manufacturers.

Hollow-Core Fiber: From Lab to Commercial Use in Under a Year

If CPO represents the "present continuous," then hollow-core fiber is the "future that just arrived."

The latest news reveals that China's next-generation communication technology—hollow-core fiber—has already entered commercial use between smart computing centers in Zhongwei, Ningxia, reducing transmission latency and loss by over 30%. FiberHome has also overcome the challenge of hundred-kilometer-scale fabrication, completing continuous drawing of single-spool 110.6 km anti-resonant hollow-core fibers, setting a new domestic record.

The significance of hollow-core fiber lies in the fact that traditional fiber's latency and loss are nearing physical limits, while AI data centers' demand for long-distance, low-latency transmission is exploding. By replacing glass cores with air, hollow-core fibers allow light to propagate through air, theoretically slashing latency and nonlinear effects.

This technology transitioned from lab to commercial use in under a year. Driven by the AI computing power race, the iteration speed of foundational materials is being compressed like never before.

Broadcom Sets the Tone: 100,000-XPU Clusters Must Adopt Optical Connectivity

On the eve of the OCP Global Summit, Broadcom released an article widely interpreted by the industry, whose core message was a single sentence: Copper cables have reached their physical limits, and AI clusters with 100,000 XPUs must adopt open Ethernet and optical connectivity.

Broadcom also unveiled its ace: The Tomahawk Ultra chip has entered mass production, supporting 51.2 Tbps bandwidth per chip with latency below 250 nanoseconds. This chip aims to drive the evolution of Scale-Up networks from proprietary interconnects to open standards (such as SUE-T, ESUN, OCI).

In plain terms: Broadcom is telling the entire industry that the transition from copper to optical is not a choice but a necessity. And this answer is already encoded in mass-produced chips.

Accelerated CPO Industrialization: Domestic and International Progress in Tandem

The pace of CPO industrialization is faster than most anticipated.

CPO breakthroughs are occurring first on the switch side. Broadcom's Tomahawk 5-Bailly became the industry's first CPO solution to enter mass production, while NVIDIA's Quantum-X Photonics has already been deployed in actual AI clusters.

Domestically, progress is equally robust. Huawei's Ascend 960 super node has adopted NPO technology, Alibaba Cloud unveiled the world's first SNPO optical interconnect super node, and Tencent Cloud plans to deploy NPO super nodes in Q4 2026.

From CPO to NPO to SNPO, the terminology evolves, but the direction remains clear: Bring optics as close as possible to computing chips, replace electrical interconnects with optical ones, and break through the physical bottlenecks of bandwidth and power consumption.

In the short term, policy rumors and sentiment fluctuations will continue to rattle the market. However, when viewed over a longer horizon, the main theme of optical interconnect upgrades driven by AI computing power remains unaltered.

Hengtong Optic-Electric's RMB 6.6 billion private placement, Largan Precision's confirmation of FAU shortages, the commercial deployment of hollow-core fibers, and Broadcom's mass production of 51.2T chips—these substantive industrial actions are the true variables shaping the industry's future.

During times of panic, it's worth paying closer attention to what the industry is actually doing. After all, the story of optics replacing copper has just begun its second act.