The anxiety of optical modules: Misinterpretations of the "CPO impact" exist, and "over-concentration of chips" needs time to be digested.

```

Will CPO technology rapidly and comprehensively replace pluggable optical modules? This may be a typical market misunderstanding.

On February 8th, analysts Song Jiaji, Huang Han, and Shi Yujie from Guosheng Securities released a report titled "Communication: The Divergence and Convergence of the Optical Module Logic," giving a detailed interpretation of the market anxiety triggered by Nvidia's announcement to deploy CPO technology at scale this year. The analysts believe that this concern "deviates from the fundamental industry trend, is a misunderstanding of CPO technology, and leads to irrational differentiation in market valuations."

CPO and Pluggables are not "life-or-death rivals", but "develop in parallel"

The market generally worries that CPO will comprehensively replace pluggable optical modules, but the report clearly points out that "Pluggable and CPO are not opposing or fully substitutive models, but two parallel paths." For the next two to three years, pluggables will remain mainstream for "scale-out (inter-cabinet) connectivity."

The core logic lies in the differences in application scenarios:

• CPO Scenario: "CPO's main scenario is scale-up (in-cabinet), promoted by chip makers such as Nvidia." The report clearly defines: "Essentially, CPO creates new incremental value for optical communications in the in-cabinet interconnect market, rather than a replacement of existing volume."
• Pluggable Scenario: "Meanwhile, in pluggable's main scenario of scale-out (inter-cabinet), CSP vendors prefer decoupled solutions and have no plans for large-scale CPO deployment."

Based on this, the report gives a clear timeline judgement: "In the next two to three years, and even for a longer time, pluggable optical modules will remain the mainstream solution for data center optical interconnect."

Industry giants have not been abandoned; technical barriers are enhanced

Another layer of market anxiety is ecological exclusion—the concern that "chip makers and TSMC develop CPO together, and optical module makers are being excluded from the CPO ecosystem."

In response, the report refutes this strongly. CPO technology's reliance on silicon photonics capabilities is, in fact, a moat for leading optical module vendors.

The report analyzes: "Actually, CPO's compatibility with silicon photonics means it naturally relies more on silicon photonics chip capabilities. Leading optical module vendors with advanced silicon photonics (PIC) design have already carried out technical research and reserves in the CPO field. Enhanced technical barriers are actually beneficial to leading companies."

Leading optical module vendors have not been excluded from the ecosystem. Instead, deep technical accumulation strengthens their competitive barriers.

The "growing pains" from concentrated holdings require time to digest

Beyond technical misunderstandings, recent volatility in the optical module sector mostly stems from market trading structure issues. The report bluntly states: "Currently, chip holdings in the optical module sector are overly concentrated and require time for structural optimization and self-correction."

This concentration originates from strong fundamentals. The report notes, "In the past few quarters, optical module vendors have benefitted greatly from the AI computing wave, with visible performance and strong fundamentals driving highly concentrated institutional holdings."

Even in the traditional investment off-season of Q4, "optical modules have a clear comparative advantage in terms of demand certainty and profit growth, attracting large amounts of capital chasing growth."

However, this has also brought side effects. The rapid influx of capital leads to unstable chip holdings.

"Rapid concentration of holdings means the sector has accumulated a large volume of short-term floating profits and trend trading positions. The stability of these holdings is weak, sensitive to negative news, and prone to shake with short-term market style shifts or industry news, thus exacerbating stock price volatility."

The report emphasizes that this is a normal phenomenon in the course of sector growth: "The sector needs time to digest floating gains and re-exchange holdings so that the holding structure becomes stable again." As "optical module vendors’ performance continues to deliver, market concerns and disagreements over uncertainties will gradually settle, and cognition of the optical module sector will return to convergence."

Risk Reminder and DisclaimerThe market is risky, investment requires caution. This article does not constitute individual investment advice and has not taken into account users’ specific investment objectives, financial situation, or needs. Users should consider whether opinions, perspectives, or conclusions presented in this article match their own situation. Invest at your own risk. ```