Citigroup TMT Conference: NPOs are racing ahead, the bottleneck for CPOs is testing, and optical interconnects are "the next HBM".

Citigroup believes that NPO has replaced CPO as the preferred trading logic in the near term, while lasers and optical fibers are being positioned as "the next HBM," with expectations of supply shortages driving new valuation narratives for related assets.

According to TrendFocus, on September 8th, the Citi Atif Malik team released a research report, recording the key points of interviews conducted with Lightmatter CEO Nicholas Harris and CFO Simona Jankowski during the Citi Global TMT Conference.

The management of photonic interconnect startup Lightmatter stated that NPO (Near Packaging Optics) is expected to enter the market in 2027 and achieve mass adoption in 2028; meanwhile, the time window for CPO (Co Packaging Optics) to scale up remains unchanged at 2028 to 2029.

Management also characterized lasers and optical fibers as "the next HBM," implying that tight supply will support the scarcity premium of related assets.

NPOs have replaced CPOs as the mainstream trading direction recently.

According to Citi Research, prior to the OFC Fiber Optics Exhibition in 2026, the market generally expected CPO to be used for large-scale expansion first in 2027-2028. However, after the exhibition, the market focus has clearly shifted to NPO.

Lightmatter management stated that NPO platforms will gradually emerge starting in 2027, with high-volume, widespread deployments expected in 2028. The application timeline for CPOs in scalable scenarios remains between 2028 and 2029.

The implementation of the OCI industry standard is considered a major catalyst for accelerating current design activities, as previous architectural uncertainties had inhibited customer investment.

Lightmatter anchors its economic logic at the core of its cost savings from bidirectional (BiDi) fiber optic technology . Management aims to achieve a significant reduction in unit cost per gigabit per second compared to existing pluggable transceivers (with a benchmark of approximately $0.5/Gbps).

Its Passage L20 NPO engine provides 6.4 Tbps bandwidth and uses BiDi technology, allowing a single fiber to carry both transmit and receive signals simultaneously, eliminating the need for separate transmit and receive fibers.

Management stated that this move could halve the amount of fiber used, and based on the overall scale of the data center, management quantified this saving benefit as approximately $1.6 billion in network cost savings per gigawatt.

Against this backdrop, management has characterized lasers and optical fibers as "the next HBM," and their scarce supply attributes are attracting market attention.

The bottleneck for CPO is the testing infrastructure.

The common interpretation of the slow progress of CPO is often focused on the immaturity of the technology, but management has clearly pointed out that the core bottleneck restricting the scaling of CPO is the testing capacity, not the technology itself.

Currently, the annual production of CPO switches is only in the thousands to about 10,000 units, while management estimates that the industry's required capacity is about 100 times the current level, and wafer-level test equipment suppliers are still severely scarce. This assessment implies that there may be undervalued investment opportunities in the test equipment segment.

At the industry standards level, Lightmatter participated in the Open Compute Project (OCP) silicon photonics initiative, which aims to unify system-level design specifications and avoid duplication of investment across the industry at the system and rack-level engineering levels.

According to management, the collaboration has expanded from the initial nine partners to approximately 19, and a joint specification document of 300 pages has been released, which is positioned similarly to NVIDIA's reference design manual.

Meanwhile, Lightmatter partnered with NVIDIA on NVLink Fusion in June 2026.

Management stated that previously, NVLink Fusion was limited by copper cabling, enabling only short-distance transmission within racks. The introduction of fiber optic interconnects will break this physical boundary, extending the scalability beyond the coverage of single-rack copper cabling. Management cited over 1 million hours of error-free data as evidence of the technology's readiness.

Laser strategy shifts towards integrated "ultra-large-scale integrated" photonic devices

Regarding the laser technology path, management judged that the laser power of a single device has approached the physical limit—about 400mW, with a threshold of about 500mW. This means that further increasing the bandwidth requires increasing the number of lasers.

Lightmatter's solution is a laser array based on GaAs material and using a 300mm CMOS wafer, with 128 lasers integrated on each chip. The latest product achieves 16 Tbps bandwidth per module and is under development in various packaging forms, including OSFP.

Management positions the photonic connector as a unique technology product on the market, claiming that it eliminates the shoreline limitations of laser placement, provides approximately 10 times the bandwidth density of alternatives, and states that no other company currently offers similar technology.

As NPO and CPO design activities heat up, customer demand for connector designs is also increasing.

At the modulator architecture level, OCI MSA has officially established the micro-ring modulator as the industry default architecture, taking precedence over the electroabsorption modulator.

Management stated that Lightmatter's thermal control system can maintain the stability of the microring modulator under extreme gradients of 2000 degrees Celsius per second, even in scenarios where it is stacked with high-power advanced process accelerators.

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