Key Takeaways:
A confluence of AI data center construction and military demand is creating a structural supercycle in the global fiber optic market, with supply bottlenecks expected to last until at least 2027.
Prices for high-grade fiber optic cable have surged 650 percent in the last year, a rally driven not by traditional telecom cycles but by a fundamental demand shock from AI data centers and military drones that is rapidly shifting pricing power to manufacturers.
"This price increase is not a cyclical repair but a 'supply-demand gap-driven price hike'," Guosheng Securities analysts said in a March research note, identifying the shift from a buyer's to a seller's market.
The price of G.657.A2 fiber jumped from 32 yuan to 240 yuan per core-kilometer, according to CCTV Finance. The new demand from AI and drones now accounts for over 20 percent of the traditional market, with Guosheng Securities forecasting the global supply deficit to reach 6 percent in 2026 and widen to 15 percent by 2027.
The core of the issue is a rigid 18- to 24-month lead time for expanding production of fiber preforms, the key upstream component. This supply inelasticity means that even as demand soars, new capacity will not arrive before 2027, setting the stage for sustained high prices and significant profit expansion for producers like YOFC and Hengtong.
This bull market's foundation is a complete restructuring of demand. AI data centers (AIDC) require a fundamentally different network architecture than traditional cloud facilities. To handle the massive "east-west" traffic of GPU-to-GPU communication in training clusters, AIDC requires a 1:1 non-blocking setup. This results in a single server cabinet consuming 800 to 1,000 core fiber connections, a 5-10x increase from the 40-80 cores in a traditional cabinet. "The demand for optical fiber may have increased by 5 to 10 times," said Peng Chuyu, R&D manager at Fiberhome Communications' fiber optics division.
Data from CRU Group projects that AIDC's share of global fiber demand will explode from 5 percent in 2024 to 30 percent by 2027, supplanting telecom operators as the primary growth driver.
At the same time, military demand has turned fiber into a high-frequency consumable. Fiber-guided drones, which are resistant to electronic jamming, trail 10-20 kilometers of non-recoverable G.657.A2 fiber on each mission. Guosheng Securities estimates this new demand segment is already consuming 50 million core-kilometers annually, potentially rising to over 80 million. Combined, these two new sources of demand account for more than 100 million core-kilometers, or over 20% of the roughly 500 million core-kilometer traditional global market.
While demand has exploded, supply is constrained by the manufacturing process for optical fiber preforms, the glass rods from which fiber is drawn. This upstream segment, which accounts for 70 percent of the industry's profit, has an 18- to 24-month expansion cycle due to complex chemical deposition processes and stringent regulatory approvals. This means any decision to add capacity today won't result in effective supply until 2027.
The supply crunch is exacerbated by a structural mismatch. Leading manufacturers are prioritizing their limited preform capacity to produce high-margin specialty fibers like G.657.A2 for AI and military use. This is creating a shortage of standard G.652.D fiber used in traditional broadband, causing prices to rise across the board. The market is already seeing the effects, with major producers like Corning and Fujikura signing multi-year deals with customers like Meta, and some delivery times stretching beyond 60 weeks.
For investors, the dynamic creates a clear opportunity. With supply fixed and costs stable, rising prices translate almost directly into profit. According to Guosheng Securities' model, every 10 yuan increase in the price per core-kilometer could add between 200 million and 1 billion yuan in net profit for leading Chinese manufacturers. If average prices return to the 2018 peak of 90 yuan/core-km by 2026, the analysis projects it could generate an additional 7.7 billion yuan and 5.3 billion yuan in pre-tax profit for YOFC and Hengtong Opti-Electric, respectively.
This article is for informational purposes only and does not constitute investment advice.
