JPMorgan on "Optical Modules": 1.6T pluggable optical modules may "exceed expectations," "CPO impact" expected after 2027

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After the recent China International Optoelectronic Expo (CIOE), JPMorgan believes that the ramp-up pace of 1.6T pluggable optical modules may exceed market expectations, that a “CPO impact” is unlikely in the short term, and that Zhongji Innolight is expected to continue benefiting in the coming years.

On September 16, according to news from the Wind Chasing Trading Desk, JPMorgan said in its latest research report that the market may still be underestimating the potential demand for 1.6T pluggable optical modules, and its volume ramp-up pace could exceed expectations, directly benefiting leading manufacturer Zhongji Innolight’s performance growth. As a result, JPMorgan has raised its profit forecasts for Zhongji Innolight in 2026 and 2027 by 18% and 17% respectively.

Regarding the widely concerned next-generation technology—co-packaged optics (CPO), JPMorgan believes:

It will not pose a disruptive impact in the short term, and its large-scale application is expected to occur only after 2027, which means pluggable optical modules will remain the mainstream technology in the next few years, mainly considering end customers’ cost/performance efficiency. Even if there may be a transition to the next-generation technology after 2027, Zhongji Innolight is still expected to be a major participant.

1.6T Pluggable Optical Modules Exceed Expectations

After attending Zhongji Innolight’s Investor Day event, JPMorgan further reinforced its optimistic view of the 1.6T pluggable optical module market.

It pointed out that, in addition to the sustained strong demand for 800G in 2026, there is significant upside potential for 1.6T pluggable optical module shipments in 2026–2027, mainly based on two driving factors:

800G upgrade demand on track: With the continuous evolution of AI systems, network bandwidth demand is growing exponentially, and the upgrade path from 800G to 1.6T is clear and certain.

ASIC solutions driving additional demand: ASIC chip solutions dedicated to AI computing will also generate potential demand for high-speed optical modules, opening up extra growth space for the 1.6T market.

JPMorgan believes that this trend is a significant positive for Zhongji Innolight. The company is currently widely applying silicon photonics solutions in its 800G and 1.6T pluggable products. Higher shipment volumes not only directly increase sales revenue, but more importantly, can optimize cost structure through scale effects, thereby enhancing overall profitability.

Specifically, JPMorgan maintains its previous 800G shipment assumptions, but raises its forecast for 1.6T shipments. Based on this adjustment, the bank has raised Zhongji Innolight’s 2026 revenue forecast from 61.393 billion yuan to 70.804 billion yuan, an increase of 15%; and raised its 2027 revenue forecast from 75.771 billion yuan to 88.551 billion yuan, an increase of 17%.

The revised net profit forecast for 2026 has been raised from 16.796 billion yuan to 19.776 billion yuan, and earnings per share has been raised from 15.12 yuan to 17.80 yuan; while the revised net profit forecast for 2027 has been raised from 20.347 billion yuan to 23.868 billion yuan.

JPMorgan expects compound annual growth rates for Zhongji Innolight’s sales/profits in 2025–2027 to reach 55%/66% respectively. Notably, JPMorgan’s gross margin forecast is relatively conservative at about 40%, providing potential upside for profitability projections.

JPMorgan maintains its “Overweight” rating on Zhongji Innolight, raising the target price from 366 yuan to 430 yuan, based on a one-year forward P/E multiple of 20. Analysts point out that the stock is currently trading at 19 times the expected 2027 earnings, while peers are trading at 25–30 times, indicating there is still room for valuation growth.

“CPO Impact” Postponed

The report states that although the CIOE showcased a variety of next-generation connectivity solutions including co-packaged optics (CPO), near-packaged optics (NPO), and co-packaged copper interconnects (CPC), sparking concerns among investors over the technology roadmap, JPMorgan has made it clear that these alternative solutions will not immediately cause disruptive effects.

The bank believes that before the 3.2T solutions are rolled out on a large scale, pluggable optical modules, with their comprehensive advantages in cost and performance efficiency, will remain the first choice and mainstream technology for end users. This means that widespread adoption and transition to CPO and similar technologies is expected to occur after 2027.

JPMorgan says that even if the market may adopt or shift to next-generation technology after 2027, Zhongji Innolight will still retain its competitive edge.

Analysts emphasize that Zhongji Innolight has professional expertise in optics and module integration and has established close relationships with leading customers. These are key factors supporting the company’s continued leadership during technological shifts.

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