Citigroup nearly doubles InnoLight’s target price; optical interconnect market’s CAGR expected to reach 65% over the next three years.

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The competition for AI computing power continues to heat up, and the optical communication industry chain is ushering in a period of strategic opportunity.

Driven by the sustained growth in large model training and inference demand, data center network bandwidth is constantly being upgraded. Optical interconnect, as the “highway” of computing power systems, is rising from traditional communication supporting to become one of the core tracks with the highest growth certainty in AI infrastructure.

According to Zhui Feng Trading Desk, Citigroup’s latest report estimates that the global optical interconnect market size will grow from around $22 billion in 2025 to $92 billion in 2028, with a three-year compound annual growth rate as high as 65%. The growth momentum has shifted from traditional traffic cycles to the dual resonance of AI computing power cluster expansion and increased penetration of high-speed optical modules, and the industry is moving from “cyclical fluctuations” to “structural expansion.”

New Yisheng (Eoptolink) is one of the most watched stocks in Citigroup’s latest round of upgrades, with the target price raised sharply from 353.57 yuan to 701 yuan, nearly doubling. The core logic lies in: the market is currently mainly pricing short-term prosperity of 800G and 1.6T, while the long-term growth of 3.2T product volume and NPO optical engine commercialization still has significant expectation gaps. Continued product structure upgrades are expected to further amplify profit elasticity.

Tianfu Communications also gained favor from Citigroup, with its target price raised by about 32% to 419 yuan. The core logic is that against the backdrop of large-scale implementation of CPO (Co-Packaged Optics) solutions, the company’s advantages in key components such as optical engines and FAUs will gradually materialize.

3.2T takes the baton, NPO launches, optical interconnects CAGR as high as 65% in three years

Citigroup’s report predicts that from 2025 to 2028, global optical interconnect shipments will increase from 110 million units to 300 million units, with a compound annual growth rate of 40%; the market size will surge from $22 billion to $92 billion, with a compound annual growth rate as high as 65%. The difference in volume and price growth stems from product structure upgrades—the proportion of high-speed optical modules continues to rise, raising the overall average selling price, and the industry is breaking away from the past competition model of communication equipment relying on price cuts to grab market share.

Data centers have become the absolute demand driver, and the proportion of optical module shipments will increase from 71% to 89% within three years. The upgrade of AI computing power cluster bandwidth is the core driver. The penetration rate of 800G and above high-speed products in the data communication field is soaring from 37% to 89%, while low-speed modules are exiting rapidly.

By rate, 1.6T modules will ramp up in 2027 with a three-year compound annual growth rate of 215%; 3.2T modules will begin shipment in 2027 and ramp up quickly in the following year, becoming the next growth driver. At the same time, new CPO/NPO packaging solutions will also be implemented on a large scale from 2027, among which the NPO solution fits precisely with the horizontal computing cluster architectures of companies like Google and Nvidia.

Upstream optical chip segments benefit synchronously. The penetration rate of silicon photonics technology will increase from 29% to 60%, driving rapid growth in demand for EML and CW laser chips. Optical chips, with their technological barriers and capacity scarcity, have become the most certain beneficiaries in the industry chain. Overall, the optical interconnect industry is migrating from communication supporting to computing power infrastructure, with a clear path for volume and price expansion in the next three years, and the first-mover advantage of leading companies is expected to be further amplified.

Core of Eoptolink’s revaluation: 3.2T+NPO dual growth curve fulfilled

Citigroup has significantly raised Eoptolink’s target price to 701 yuan, nearly doubling from its current share price. The core logic lies in the fact that the market has so far only priced the short-term boom of 800G and 1.6T, while the long-term increment of 3.2T mass delivery and NPO optical engine implementation has not been fully accounted for. Global customer barriers and industry-leading profitability provide fundamental support for raising the valuation.

For earnings forecasts, Citigroup raised Eoptolink’s net profit expectations for 2026 and 2027 by 8% and 13%, respectively, with the main increment coming from shipments of 3.2T products and gradually realized NPO optical engine orders. The net profit in 2028 is further projected to reach 65.828 billion yuan, with a three-year compound annual growth rate of 190%, and scale effects and product structure upgrades are continuing to push margin expansion.

On the gross margin side, the company is expected to maintain high levels of 52.9%, 53.9%, and 54.0% from 2026 to 2028, about 10 percentage points higher than industry peers. Citigroup believes this is due to excellent cost control and deep ties with top overseas cloud vendors, forming a moat that’s hard to replicate.

On the valuation side, the target price of 701 yuan corresponds to 20 times dynamic PE for 2027, which is 0.5 standard deviation below the company’s five-year historical average. Citigroup believes that with the sustained boom of 800G and 1.6T, combined with the high certainty of long-term cash flow from 3.2T and NPO, the company should enjoy a growth premium higher than traditional communications companies.

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