The accelerated adoption of optical interconnects in AI data centers is solidifying a multi-year growth cycle for a handful of critical component suppliers.
Hon Hai Precision Industry Co. (2317.TW), better known as Foxconn, has reportedly started early delivery of its all-optical Co-Packaged Optics (CPO) switch cabinets to Nvidia Corp. (NVDA), according to a report from Taiwan’s Economic Daily News. The report suggests shipment targets have surged from an initial 10,000 units for 2026 to a combined total of over 50,000 units for 2026 and 2027.
The move highlights the critical need for advanced optical technologies to handle the massive data loads in next-generation AI infrastructure. "AI is driving the largest infrastructure build-out of our time," Nvidia CEO Jensen Huang said recently when announcing a separate optical partnership with Corning Inc. (GLW). "We are inventing the future of computing with advanced optical technologies."
Foxconn, acting as the sole original design manufacturer (ODM) for Nvidia's CPO switches, was initially slated to begin mass production in the third quarter of 2026. The reported early shipments from its Vietnam factory, which are said to be so constrained that even display models were sent to Nvidia, point to a significant acceleration of this timeline. Foxconn declined to comment on specific clients or products.
For Foxconn, the strategic shift is substantial. The CPO switch business carries gross margins in the double digits, a stark contrast to the 5% to 8% margins typical of its traditional server assembly business. The company's subsidiary, Foxconn Industrial Internet (FII), projects that CPO-related business will contribute over 15% of its revenue in 2026, establishing a powerful second growth driver beyond AI servers and fundamentally altering the group's profitability structure.
The Shift to Light Speed
Co-Packaged Optics technology is a critical enabler for the exponential growth of AI data centers. By packaging optical modules directly with the networking switch chip, CPO replaces traditional copper cables with fiber optics for interconnecting servers. This allows data to be transmitted as light signals rather than electrical signals, dramatically increasing data transfer speeds and reducing power consumption—two of the primary bottlenecks in scaling AI clusters.
As AI models grow in complexity, the demand for higher bandwidth and more efficient data transfer between thousands of GPUs becomes paramount. According to research firm McKinsey & Co., global capital expenditure on AI-powered data center infrastructure is estimated to reach approximately $7 trillion by 2030, fueling intense demand for the underlying optical and photonics components.
Optical Supply Chain Heats Up
Nvidia's aggressive push into CPO is creating a massive tailwind for the entire optical component supply chain. Beyond its partnership with Foxconn, Nvidia recently entered a multiyear collaboration with glass and optics specialist Corning Inc. (GLW) to expand U.S. manufacturing of advanced optical solutions. Corning expects revenue and earnings growth of 13.3% and 26.6%, respectively, for the current year.
Other key suppliers are reporting record demand. Lumentum Holdings Inc. (LITE), which makes high-speed laser chips and transceivers, saw its revenue surge 90.1% year over year to $808 million in its most recent quarter, driven by AI demand. The company expects revenue to grow more than 100% year-over-year in the current quarter and noted that its manufacturing capacity for 200-gig EML laser chips is fully booked.
Similarly, Coherent Corp. (COHR), another major optical component maker, reports that most of its calendar 2026 production is already booked, with some orders extending into 2027. The company anticipates revenue growth of 30.9% for the next year. The deep booking visibility across the sector confirms that the CPO transition is a durable, multi-year investment cycle, reducing near-term revenue uncertainty for these specialized manufacturers.
This article is for informational purposes only and does not constitute investment advice.
