Target price doubles to 2,581 yuan! Goldman Sachs: NVIDIA accelerates demand for 3.2T optical modules, prompting valuation reshaping for Zhongji Xuchuang.

Target price doubles to 2,581 yuan! Goldman Sachs: NVIDIA accelerates demand for 3.2T optical modules, prompting valuation reshaping for Zhongji Xuchuang.

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The boom in AI infrastructure investment continues to heat up, and as computing systems evolve toward higher-speed interconnection, the optical module industry is ushering in a new round of technological upgrades.

On July 17, Goldman Sachs released its latest research report, raising the 12-month target price for Zhongji Xuchuang from 1187 RMB to 2581 RMB, maintaining a "Buy" rating. At the same time, Goldman Sachs raised the company's net profit forecasts for 2026-2028 by 65%, 108%, and 119%, respectively.

Goldman Sachs believes that the continued upgrade of NVIDIA's new generation AI servers is driving data center networks rapidly from 800G to 1.6T, and laying the foundation for 3.2T deployments, marking a new phase of expansion in the global high-speed optical module market.

With its leading position in silicon photonics technology, status as the world’s largest supplier of optical interconnection solutions, and continuously expanding production capacity, Zhongji Xuchuang is expected to become the core beneficiary of this round of AI network infrastructure upgrades and further cement its global leadership.

Goldman Sachs raises earnings forecasts, AI demand fuels expansion and continued margin improvement

The main change in this report comes from earnings forecasts.

Goldman Sachs raised revenue forecasts for Zhongji Xuchuang in 2026-2028 by 57%, 100%, and 118%, with corresponding revenues reaching 123.6 billion RMB, 249.6 billion RMB, and 334 billion RMB; net profit forecasts for the same period were also raised by 65%, 108%, and 119%.

Goldman Sachs believes the main sources of these earnings forecast adjustments are threefold:

First, AI infrastructure investment continues to exceed expectations, with rapid growth in demand for high-speed optical modules;

Second, the company’s capacity expansion is significantly faster than previously anticipated, with overall capacity expected to more than double by 2026;

Third, in addition to traditional pluggable optical modules, the company is entering new scale-up markets such as optical engines, NPO/CPO, and OCS optical switches, opening up new growth opportunities.

At the same time, as the proportion of silicon photonics products continues to rise and scale effects are realized, the company's gross margin is expected to improve from 42% in 2025 to 50% in 2028, with net margin rising to 33%.

AI server upgrades drive rapid evolution from 800G to 3.2T

Goldman Sachs judges that the global optical module market is entering a new technological upgrade cycle.

The report estimates that the global optical module market will grow from $34.2 billion in 2025 to $50.9 billion in 2026, $72.6 billion in 2027, and will remain around $69.1 billion in 2028. The real growth momentum comes from high-speed products above 800G.

Goldman Sachs estimates:

  • 800G optical module shipments will reach about 34.18 million units in 2026 and increase to 44.99 million in 2027;
  • 1.6T optical module shipments will reach 25.5 million units in 2026, rapidly jumping to 45.72 million in 2027, becoming the market mainstream;
  • 3.2T optical modules will officially enter the mass delivery phase in 2027, with shipments reaching 13.07 million units and rising further to 28.16 million in 2028.

The core driver behind this upgrade comes from NVIDIA's AI server roadmap.

Goldman Sachs forecasts that the number of global AI server racks will grow from about 55,000 in 2026 to 105,000 in 2027 and reach 163,000 in 2028. As GB200 adopts a 400G+800G network architecture, GB300 upgrades to 800G+1.6T, and the next-generation Rubin and Rubin Ultra further move to 1.6T and 3.2T, demand for high-speed optical modules will continue to rise.

Silicon photonics penetration soars, leading players' first-mover advantage builds high barriers

Compared with the last product upgrade cycle, Goldman Sachs believes the bigger change in this industry transformation comes from the technological path.

The report forecasts that by 2026, the penetration of silicon photonics (SiPh) will reach 60%, 80%, and 100% in 800G, 1.6T, and 3.2T products, respectively. The SiPh revenue share in the entire optical module industry will also rise from 28% in 2025 to 62% in 2028.

Goldman Sachs points out that silicon photonics not only has better power consumption and performance advantages but also reduces packaging complexity, improves supply chain flexibility, and effectively lowers costs, thereby quickly replacing traditional EML solutions in high-speed products. Zhongji Xuchuang is one of the first companies globally to achieve large-scale commercial production of high-speed silicon photonics modules.

The company has already deployed next-generation technologies such as coherent optical communication, LPO, LRO, XPO, and CPO/NPO, and established a complete new product introduction (NPI) system to continuously shorten the R&D to mass production cycle.

Goldman Sachs believes that as core component supply tightens and industry technical barriers rise, new entrants will find it increasingly difficult to replicate this advantage, and leading companies are expected to further increase their market share.

Earnings quality jumps, free cash flow and cash reserves continue to grow

According to LightCounting and CIC statistics, Zhongji Xuchuang will become the world's largest optical interconnect solution provider in 2025, with a market share of 21.2%, maintaining a lead in multiple high-speed product areas such as 400G, 800G, and 1.6T.

Goldman Sachs expects the company not only to see strong revenue growth in coming years, but also continual improvement in earnings quality. The report anticipates ROE to rise from 44% in 2025 to 52%-61% in 2026-2028; capital return rate (CROCI) could reach as high as 137.5%.

Although capital expenditure in 2026 is expected to increase by 155% year-on-year to 7.03 billion RMB to support new capacity construction, free cash flow will still show strong growth, projected to reach 8.5 billion, 62.3 billion, and 111.5 billion RMB, respectively, from 2026 to 2028.

Meanwhile, the company will remain in a net cash position, with cash and cash equivalents expected to grow from about 11 billion RMB in 2025 to 195.1 billion RMB in 2028, while the cash conversion cycle is also expected to shorten from 122 days to 98 days.

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