Track Hyper | NVIDIA Jensen Huang affirms the value of copper connection costs

Author: Zhou Yuan / Wall Street News

The copper cable interconnection sector experienced a surge in mid-December 2024, but about a week later, a market rumor ended its long bullish trend.

However, after communicating with the supply chain, Wall Street News discovered that the technology mentioned in that rumor was neither advanced nor new; even if the rumored technology could be applied on a large scale, the cost advantage of copper cable interconnection would not be affected.

This technological speculation was confirmed in a recent statement by NVIDIA CEO Jensen Huang.

On January 18, 2025, during a speech in Taiwan, Huang stated, "We are collaborating with TSMC to develop silicon photonics technology, but it will still take a few years. We should continue to use copper technology, and afterwards, if needed, we can use silicon photonics technology."

Huang announced during his speech that NVIDIA will continue to adopt copper cable interconnection solutions and will keep using copper cables for the next few years. He pointed out that the application of high-speed copper cables in data centers is expected to expand, and these active cables have significant cost advantages.

Image description: Screenshot from the December 30, 2024 report "Track Hyper | The Invisible ASIC Industry Chain: How Bowei Alloy Benefits"

By adopting new cable materials, optimizing multi-strand core designs, and improving connector structures, the high-speed transmission performance of copper cables has been significantly enhanced.

This technology supports applications of high-speed bus standards such as Gigabit Ethernet and PCIe, meeting the high demands for high-speed and stable data transmission in current data centers.

In practical applications, high-speed copper cable connections can stably transmit massive amounts of data, ensuring the efficient operation of data centers.

Due to the physical limitations of metallic copper, the transmission distance is relatively short. As bandwidth increases, the effective transmission distance will further shorten.

During the upgrade from 400GB to 800GB, the transmission distance of DAC (Direct Attach Copper) will decrease from 3 meters to 2 meters. This limitation restricts the application of high-speed copper connections in long-distance transmission scenarios.

The optimal competitive point of copper cable connections focuses on cost, with the cost of high-speed copper connections being only 20% of that of optical modules. This significantly reduces construction costs in scenarios where massive data needs to be transmitted over short distances between servers in data centers.

In contrast, optical cables excel in long-distance transmission and high bandwidth demands, with a high upper limit on transmission distance to meet the needs of long-distance data transmission, but their drawback is high costs.

Due to the performance improvements of current dedicated chips (ASICs), the demand for short-distance data transmission between servers and between servers and switches has surged, leading to a new value increment in the application scale of high-speed copper connections in the short term In short-distance data transmission, high-speed copper cable connections can achieve lossless transmission of up to 800GB, combined with cost advantages, making this solution the preferred choice for internal interconnection in data centers.

Of course, this does not mean that the market size for optical modules is shrinking; optical modules are also essential for certain scenarios, such as long-distance interconnection between data centers and scenarios with extremely high bandwidth requirements.

The upstream of high-speed copper cable connections mainly includes raw materials such as copper, plastic, and electronic components. Among them, copper, as the core material, plays a decisive role in the performance of connectors due to its conductivity and stability.

In the A-share market, BoWei Alloy and XinKe Materials are primarily engaged in the upstream of high-speed copper cable connections. Among them, XinKe Materials has also recently advanced its copper cable connection project.

The production and manufacturing segment in the midstream is the core of the high-speed copper cable connection industry chain, mainly undertaken by specialized connector manufacturers. These manufacturers process upstream raw materials into finished connectors through a series of complex and precise processes.

This process includes multiple stages such as design, processing, assembly, and testing, with major companies including ZhaoLong Interconnect, Walden Materials, and BoChuang Technology. Regarding the competitiveness of the copper cable connection products and technologies of these three companies, it has been discussed previously and will not be elaborated on here.

Recently, after more communication with the supply chain, it was found that RECODEAL also has products and technological layouts for copper cable connections.

RECODEAL has high-speed copper cable product solutions aimed at high-speed data transmission. Among them, the AEC high-speed components are key products that the company is focusing on developing; in addition, RECODEAL also has related product layouts and production for high-speed board-to-board connectors and high-speed I/O connectors used in AI and data center fields, including SFP+ and CAGE series.

The supply chain informed Wall Street Insights that RECODEAL is a leading provider of high-speed data connection solutions in China, ranking among the top three in global market share and is one of the important suppliers of NVIDIA's copper cable connection solutions.

Given that many A-share companies often "ride the wave" of trends, and the supply chain tends to exaggerate business value, Wall Street Insights reviewed RECODEAL's latest financial report.

From the perspective of revenue share, in the first half of 2024, RECODEAL's communication business achieved a revenue share of about 5%, while the new energy connector business is the main revenue contributor, accounting for over 90%. The copper cable connection business falls under the communication business category.

In other words, RECODEAL's copper cable connection business is still in progress, and the supply chain may have exaggerated RECODEAL's value in the copper cable connection business.

Currently, it appears that RECODEAL's main business has no relevance to copper cable connections, and while it does have a copper cable business, the revenue share of this business module may not have reached 5%.

This is quite different from the "three giants" of copper cable connections: ZhaoLong Interconnect, BoChuang Technology, and Walden Materials, and is somewhat similar to XinKe Materials.

If RECODEAL is indeed an important supplier of NVIDIA's copper cable connection solutions, then the company's copper cable connection technology should be very competitive. However, why is the revenue share of this business so minimal? Wall Street Insights will continue to pay attention to this matter