Industry News
AI Data Center Optical Evolution: Trends & Market
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Author : JIUZHOU
Update time : 2026-09-20 15:58:58
With the rapid growth of artificial intelligence computing, data centers now need much more bandwidth. The physical limitations of traditional copper cable connections are becoming increasingly apparent as transmission speeds rise. This industry trend is driving a broad shift across the entire infrastructure.
It is moving toward fiber-optic connections and advanced optical technologies.
I. The Limits of Copper Cables and the Inevitable Shift to Optical Connectivity
Within data centers, faster connections have come with a sharp drop in the effective range of copper cables.
The Trade-off Between Speed and Distance:
At a transmission rate of 800G, the reliable transmission distance for copper cables is approximately 10 meters. When the rate increases to 1.6T, the reliable transmission range shrinks to 2 to 3 meters.
Physical Bottleneck:
As future data rates approach 3.2T, most link lengths within data center racks and clusters will far exceed this safe distance. Making it increasingly difficult for copper cables to meet the technical requirements for high-bandwidth, long-distance transmission.
Consequently, the industry is accelerating the transition from copper cables to fiber-optic connections, giving rise to numerous key technological opportunities.
II. Core Optical Communication Technologies and Market Opportunities
1. Optical Circuit Switching
Optical circuit switching has major advantages over traditional electrical switches. It uses less power and reduces signal loss. It is becoming a key growth driver for data centers.
Flexible Routing: OCS can be deployed within racks to dynamically route traffic around computing units experiencing overloads or failures.
Revaluation of Value: In modern AI model training, computing costs are often very high, so hardware failures can be very costly. Estimates of overall market demand for OCS and its potential market size are being significantly revised upward.
2. Near-Package Optics and On-Package Optics
Advanced optical packaging technologies offer strong near-term and long-term opportunities in optical communications.
Differences in Technical Pathways: CPO places the optical engine and core computing hardware on the same substrate. Whereas NPO separates the optical engine from the main computing or switching substrate.
Accelerated Timeline: As some end customers adopt optical channels very quickly, the timeline for large-scale NPO use is speeding up. The near-term commercial opportunities it will unlock are drawing strong industry attention.
3. Inter-Data-Center Fiber Connections
As the physical capacity limits of individual data centers are reached, training large-scale AI models often requires the coordinated operation of multiple facilities. Furthermore, due to planning resistance from local communities toward large data center projects, operators build smaller facilities. These facilities are spread over several kilometers. This directly and significantly increases demand for fiber connections between the facilities.
III. Laser Demand and Supply Chain Dynamics
At the optical component level, technological advancements in core lasers and optical engines are accelerating:
Product Evolution:
As data rates rise from 100G to 200G, the average value of electro-absorption-modulated lasers doubles. During the shift from 800G to 1.6T, silicon photonics and EML-based transceivers will share the market. Their shares will vary by data rate and technical limits.
Manufacturing Capacity and Supply Chain:
Faced with earlier-than-expected demand for NPOs and lasers, companies across the industry chain are expanding manufacturing capacity. Given the long cycles for equipment installation, internal certification, and customer certification, the supply chain must align capacity. This includes production for critical equipment and raw materials. This will be a key factor in future delivery capability.
Module Business and External Risks:
After early quality and yield issues, the high-speed optical module business has grown revenue each quarter. This came from better engineering execution, and ultra-high-speed modules like 1.6T are starting to ship. At the same time, potential geopolitical restrictions and supply chain adjustments are prompting global hyperscale data center operators to adopt more cautious procurement strategies.
Outlook
In the future, optical interconnect technology will evolve beyond racks and clusters. It will extend beyond backplanes into hardware trays. It will create ultra-high-bandwidth optical direct-connect channels between memory and computing cores. The entire optical communications industry chain is entering a critical window of opportunity, transitioning from technical validation to large-scale implementation.
It is moving toward fiber-optic connections and advanced optical technologies.
I. The Limits of Copper Cables and the Inevitable Shift to Optical Connectivity
Within data centers, faster connections have come with a sharp drop in the effective range of copper cables.
The Trade-off Between Speed and Distance:
At a transmission rate of 800G, the reliable transmission distance for copper cables is approximately 10 meters. When the rate increases to 1.6T, the reliable transmission range shrinks to 2 to 3 meters.
Physical Bottleneck:
As future data rates approach 3.2T, most link lengths within data center racks and clusters will far exceed this safe distance. Making it increasingly difficult for copper cables to meet the technical requirements for high-bandwidth, long-distance transmission.
Consequently, the industry is accelerating the transition from copper cables to fiber-optic connections, giving rise to numerous key technological opportunities.
II. Core Optical Communication Technologies and Market Opportunities
1. Optical Circuit Switching
Optical circuit switching has major advantages over traditional electrical switches. It uses less power and reduces signal loss. It is becoming a key growth driver for data centers.
Flexible Routing: OCS can be deployed within racks to dynamically route traffic around computing units experiencing overloads or failures.
Revaluation of Value: In modern AI model training, computing costs are often very high, so hardware failures can be very costly. Estimates of overall market demand for OCS and its potential market size are being significantly revised upward.
2. Near-Package Optics and On-Package Optics
Advanced optical packaging technologies offer strong near-term and long-term opportunities in optical communications.
Differences in Technical Pathways: CPO places the optical engine and core computing hardware on the same substrate. Whereas NPO separates the optical engine from the main computing or switching substrate.
Accelerated Timeline: As some end customers adopt optical channels very quickly, the timeline for large-scale NPO use is speeding up. The near-term commercial opportunities it will unlock are drawing strong industry attention.
3. Inter-Data-Center Fiber Connections
As the physical capacity limits of individual data centers are reached, training large-scale AI models often requires the coordinated operation of multiple facilities. Furthermore, due to planning resistance from local communities toward large data center projects, operators build smaller facilities. These facilities are spread over several kilometers. This directly and significantly increases demand for fiber connections between the facilities.
III. Laser Demand and Supply Chain Dynamics
At the optical component level, technological advancements in core lasers and optical engines are accelerating:
Product Evolution:
As data rates rise from 100G to 200G, the average value of electro-absorption-modulated lasers doubles. During the shift from 800G to 1.6T, silicon photonics and EML-based transceivers will share the market. Their shares will vary by data rate and technical limits.
Manufacturing Capacity and Supply Chain:
Faced with earlier-than-expected demand for NPOs and lasers, companies across the industry chain are expanding manufacturing capacity. Given the long cycles for equipment installation, internal certification, and customer certification, the supply chain must align capacity. This includes production for critical equipment and raw materials. This will be a key factor in future delivery capability.
Module Business and External Risks:
After early quality and yield issues, the high-speed optical module business has grown revenue each quarter. This came from better engineering execution, and ultra-high-speed modules like 1.6T are starting to ship. At the same time, potential geopolitical restrictions and supply chain adjustments are prompting global hyperscale data center operators to adopt more cautious procurement strategies.
Outlook
In the future, optical interconnect technology will evolve beyond racks and clusters. It will extend beyond backplanes into hardware trays. It will create ultra-high-bandwidth optical direct-connect channels between memory and computing cores. The entire optical communications industry chain is entering a critical window of opportunity, transitioning from technical validation to large-scale implementation.
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