BofA: Optical Devices> 800G & 1.6T Outlook:

BofA: Optical Devices

> 800G & 1.6T Outlook: 800G demand is expected to reach 50–60 million units in 2026, while 1.6T demand is projected at 30 million units. The industry is anticipated to satisfy 70–80% of 800G demand and 50–60% of 1.6T demand in 2026.

> 2027 Projections: 800G demand is predicted to flatten, whereas 1.6T demand is expected to grow by at least 50%.

> Silicon Photonics (SiPh) Penetration: SiPh penetration is forecasted to hit 50% for 800G and 60% for 1.6T by 2026.

> Dominant Form Factors: Pluggable optical transceivers are expected to remain the mainstream technology through 2030, holding the vast majority of the market share.

> Next-Gen Tech Rollouts: Near-packaged Optics (NPO)/Extra-dense Pluggable Optics (XPO) volume shipments are anticipated to start in 2027. Meanwhile, 3.2T pluggable transceivers (currently in R&D) are expected to see volume take-off in 2028.

AI Architecture and Component Constraints

> Copper vs. Optics (Scale-Up vs. Scale-Out): Mainstream scale-up architectures (specifically Nvidia’s GPU-to-GPU connections) are expected to rely heavily on short-reach copper through 2028 due to lower power consumption, reliability, and cost-effectiveness. Optics will continue to dominate in scale-out architectures.

> Active Electrical Cables (AEC): AECs are becoming critical, especially at the 1.6T node for intermediate reaches of 5 to 7 meters where Direct Attach Copper (DAC) loses signal integrity.

> Component Shortages: The industry is experiencing tight supply across EML, DSP, and faraday rotators, with laser shortages expected to last into 2027. However, BofA experts note that tier-1 suppliers with scale and prepayment resources could see supply situation easing in the latter half of 2026.

Hyperscaler Profiles & Supplier Dynamics

> AWS: Known for demanding low-cost solutions, AWS is a massive deployer of 400G and is ramping up 800G. They have distinct requirements, such as utilizing I3C for management interfaces and partnering with STMicroelectronics for Silicon Photonics.

> Google: Leads in newer optical switching architectures (Optical Circuit Switches - OCS). They began shipping 1.6T modules in Q4 2025 and are expected to triple or quadruple their optical volume in 2026–2027.

> Meta: Actively ramping up 800G in 2026, which is expected to contribute over 10 million units in volume. Meta is also uniquely open to testing Co-Packaged Optics (CPO) and Linear Pluggable Optics (LPO) due to power sensitivities.

> Microsoft: Focuses on a highly distributed data center model with links spanning 70 to 80 kilometers. They purchase heavily from Nvidia and are pioneering the "slow and wide" macro LED approach for GPU connections.

> China Cloud: Hyperscalers like Alibaba and ByteDance are estimated to be 2 to 3 years behind US counterparts, remaining heavily centered on 400G due to regional regulations and US DSP limitations.

> Supplier Landscape: Despite a growing number of smaller entrants, tier-1 leaders like Innolight, Coherent, and Eoptolink are expected to continue dominating, maintaining over 50% of the market share through strict CSP bidding caps.

$Microsoft(MSFT.US) $Alphabet(GOOGL.US) $Amazon(AMZN.US) $NVIDIA(NVDA.US) $Tower Semicon(TSEM.US) $Alibaba(BABA.US) $STMicroelectronics NV(STM.US) $Credo Tech(CRDO.US) $Semtech(SMTC.US) $Amphenol(APH.US) $Applied Optoelectronics(AAOI.US)