Goldman Sachs raises the target price of InnoLight to 762: 800G revenue expected to double next year, 1.6T technology iteration likely to bring a new growth cycle.

Goldman Sachs raises the target price of InnoLight to 762: 800G revenue expected to double next year, 1.6T technology iteration likely to bring a new growth cycle.

Goldman Sachs has shown strong confidence in the growth prospects of Zhongji Xuchuang.

On November 20, according to Chasewind Trading Desk, Goldman Sachs stated in its latest research report that it has significantly raised Zhongji Xuchuang’s target price by 62% to RMB 762 and maintained its "Buy" rating. This aggressive adjustment is based on the company’s strong growth potential in the fields of 800G/1.6T optical modules and silicon photonics technology.

Goldman Sachs predicts that, benefiting from the trend of ASIC chip diversification and the surge in demand for high-speed connectivity, Zhongji Xuchuang’s compound annual growth rate of net profit in 2025-2028 will reach 59%, with revenue from 800G optical modules in 2026 expected to soar 104% year-on-year, and revenue from 1.6T optical modules in 2027 expected to skyrocket 110% year-on-year, supporting a compound annual revenue growth rate of 52% from 2025 to 2028.

The company’s net profit forecasts for 2026 and 2027 are raised by 23% and 28% to RMB 21.645 billion and RMB 29.944 billion, respectively, mainly based on higher revenue and gross margin expectations. Operating profit margin is expected to rise from 25% in 2024 to 39% in 2028, reflecting sustained growth under the long-term demand trend for AI networks.

The report states that Goldman Sachs' sensitivity analysis shows that if 800G optical module revenue increases by 20%, there could be a 16% upside for net profit in 2026, highlighting earnings elasticity. Goldman Sachs clearly points to multiple catalysts for the first and second halves of 2026, including growth of new rack-level AI servers and deployment of new ASIC AI servers by cloud service providers.

Diversification of ASIC Chips Reshapes Demand Structure

The report states that diversification of chip platforms from GPU to ASIC is reshaping the demand for optical modules.

According to Goldman Sachs' global server market research, ASIC chips are expected to account for 38%, 40%, and 45% of the AI chip market in 2025, 2026, and 2027, respectively.

The key technical difference lies in the configuration ratio of optical modules. Leading GPUs globally typically require 2-3 optical modules per chip, while ASICs, due to lower single-chip computing power, may need 3-5 or even more than 10 optical modules per chip.

This architectural difference makes ASIC servers significantly more dependent on multi-chip, multi-server, and multi-rack connections, thereby generating stronger demand for high-speed connectivity.

Specification Upgrade Accelerates to 800G/1.6T

Generative AI is accelerating the upgrade cycle of optical module specifications.

The transition from 400G to 800G has become the main driving force for 2025, and Goldman Sachs expects this trend to continue for years to come. Deployment of 1.6T optical modules has already begun in the second half of 2025, and is expected to support long-term growth in demand.

Goldman Sachs emphasizes that as optical modules upgrade to higher speeds, market competition will decrease, as this poses higher technical barriers for design, testing, and production efficiency, benefiting technology-leading companies in maintaining or expanding market share. At the design level, signal loss, heat dissipation, and power efficiency need to be addressed, while testing requires more complex procedures.

According to Goldman Sachs' forecast, the contribution ratio of 800G/1.6T products to revenue will jump from 64%/8% in 2025 to 71%/16% in 2026, and this product portfolio upgrade will become the core driver of the company's revenue growth.

Silicon Photonics Supports Gross Margin Expansion

Goldman Sachs predicts the company’s gross margin will go from 41.6% in 2025 to 46.4% in 2027, mainly due to faster migration to higher speeds and the transition from EML to silicon photonics technology.

The report points out that, technically speaking, EML optical modules use expensive EML light sources, while silicon photonics offer a more compact and simpler architecture, which can reduce component cost and improve production efficiency.

Compared to EML, silicon photonics technology yields better gross margin performance, and the impact of export controls will ease from the fourth quarter of 2025 onwards, further supporting the company’s profitability.

Earnings Forecast Significantly Raised

Goldman Sachs has significantly revised upward its earnings forecast for Zhongji Xuchuang.

Goldman Sachs raised revenue forecasts for 2026 and 2027 by 24% and 35%, respectively, reflecting faster growth in mainstream 400G/800G products.

Although Goldman Sachs maintains a relatively cautious view for the first half of 2026, taking into account that major new ASIC AI server models will begin shipping in the second half of 2026, it still expects revenue for 2026 to jump 84% year-on-year, further accelerating from the 50% year-on-year growth in 2025.

Alongside a fine-tuned net profit forecast for 2025, net profit estimates for 2026 and 2027 are increased by 23% and 28%, respectively. Compared to market consensus, Goldman Sachs’ net profit estimates for 2026 and 2027 are 3% and 12% higher, respectively.

At the same time, the company’s gross margin forecasts for 2026 and 2027 are raised by 1.2 and 1.7 percentage points, respectively. Goldman Sachs introduced 2028 forecasts for the first time, predicting operating profit margin reaching 39%.

In terms of valuation, Goldman Sachs adopts a 31x target P/E ratio (previously 30x), and, combined with higher profit forecasts and valuation roll-forward, has substantially raised its 12-month target price from the previous RMB 470 by 62% to RMB 762.

This target P/E multiple is consistent with the company’s recent average trading level, falling between the 9-year average P/E of 34x and the average minus one standard deviation of 18x.

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