💰 New Alpha | Even brighter outlook: LITE/COHR/FN
💰 NVIDIA has announced the resumption of H20 sales in China, while U.S. retail sales in June exceeded expectations.
💹 $Lumentum(LITE)$ / $COHERENT(COHR)$ / $Fabrinet(FN)$ : Key players in the CPO sector driven by the explosive growth of AI large models and generative AI.
📣 Stay tuned, supercharge purchasing power through CashBoost!
| CPO: A grand overview
$NVIDIA(NVDA)$ 's announcement regarding the resumption of H20 sales in China, alongside the launch of a new GPU designed specifically for computer graphics, digital twins, and AI, has garnered significant industry attention. CPO technology integrates switching chips and optical engines in a single package, enabling long-distance, high-bandwidth, low-latency, and energy-efficient data transmission, which has already been implemented in NVIDIA's AI facilities, suggesting a vast market potential in the future.
CPO (Co-Packaged Optics) refers to the assembly of switching chips and optical engines within the same socket, forming a co-packaged chip and module that minimizes the operational power and heat dissipation of network devices.
The applications of CPO products are broad, encompassing data centers, cloud computing, and high-performance computing, driven by the surge in demand for AI large models and generative AI. AI compute clusters require high-bandwidth, low-latency, and energy-efficient optical interconnect solutions to connect millions of GPUs, with major cloud computing leaders like AWS, Microsoft, and Meta actively investing in the CPO field.
As demand for AI and advanced photonic devices surges, Lumentum, Coherent, and Fabrinet are poised for significant growth. Their innovations in optical technologies cater to a booming market, making them compelling investments: $Lumentum(LITE)$ / $COHERENT(COHR)$ / $Fabrinet(FN)$.
| Market recap
On Thursday, all three major U.S. stock indexes closed higher, with both the S&P 500 and Nasdaq reaching record highs. Technology stocks led the market, with large tech companies generally performing strongly, driving the indexes upward. Overall market sentiment was optimistic, as investors maintained confidence in the economic outlook.
In terms of sector performance, the technology sector stood out, benefiting from strong gains in AI and chip-related stocks. The financial sector also showed solid performance.
Megacaps - The perfect-market-fit
Jensen Huang's visit to China has generated significant buzz on social media, potentially reclaiming lost market share in China. In an interview, he stated that the U.S. government has granted export licenses for H20. The H20 is a compliant chip specifically designed for the Chinese market, projected to generate $12-15 billion in sales in 2024, accounting for 80% of NVIDIA's revenue in China.
Leading Chinese tech companies (such as Alibaba, Tencent, and Douyin) and quantitative funds are potential clients with strong AI compute demands, capable of rapidly boosting NVIDIA's sales in China.
Rebounded more than anticipated
U.S. retail sales in June increased by 0.6% month-on-month, far exceeding the anticipated 0.1% growth, with core retail sales rising by 0.5%. This data indicates a strong rebound in U.S. consumer spending, which may alleviate market concerns regarding an economic slowdown and support the Federal Reserve's stance on maintaining current interest rate policies.
Top movers
As the Crypto Week concluded, cryptocurrency-related stocks initially surged before retracing some gains. During the session, the U.S. House of Representatives passed three cryptocurrency-related bills with an overwhelming majority. At the close, $Coinbase Global, Inc.(COIN)$ was up 3.2%, $CleanSpark, Inc.(CLSK)$ rose 3.3%, and $MARA Holdings(MARA)$ increased by 2.7%.
$Taiwan Semiconductor Manufacturing(TSM)$ reported earnings that significantly exceeded expectations, igniting enthusiasm in the semiconductor market. TSMC showcased robust growth in its Q2 2025 financial report, with a year-on-year revenue increase of 44.4% to $30.07 billion and earnings per share of $2.47, surpassing market forecasts. Due to the sustained high demand in AI and high-performance computing (HPC), the company raised its full-year revenue growth forecast to 30%.
$Netflix(NFLX)$ delivered impressive earnings, showcasing a robust growth outlook. In Q2, Netflix's revenue grew by 15.9% year-on-year to $11.08 billion, with net profit soaring 45.6% to $3.125 billion and EPS at $7.19. The company adjusted its full-year revenue guidance to a range of $44.8 billion to $45.2 billion, anticipating a doubling of advertising revenue. Furthermore, Netflix debuted generative AI in the production of visual effects for its original series, highlighting AI's potential in content creation. Additionally, it plans to launch the first live-action series based on Ubisoft's Assassin’s Creed.
| Optical modules: Even brighter outlook
The optical module industry, particularly in the 800G and upcoming 1.6T production, is witnessing sustained high demand driven by AI investments from North American cloud providers.
The demand for 800G modules is experiencing robust growth. It is estimated that global shipments will reach approximately 9-10 million units in 2024, with a projected doubling in 2025 to around 18-20 million units, primarily driven by North American cloud providers like Google, Microsoft, AWS, and Meta. By 2026, an additional growth of about 50% is expected compared to 2025, reaching shipment peaks of approximately 27-30 million units.
Optical module and optical device manufacturers are crucial players in the supply chain, possessing significant market influence. Typical firms such as $Lumentum(LITE)$ / $COHERENT(COHR)$ / $Fabrinet(FN)$ are actively expanding their production capacity and broadening their client base, including companies like Microsoft and Oracle, to enhance their market share.
LITE
As the next generation of cloud infrastructure and AI systems accelerates, the demand for advanced photonic devices is surging, with leading company $Lumentum(LITE)$ at the forefront of this transformation.
Lumentum's “Cloud and Networking” segment has become the primary driver of the company's growth. In Q2 of FY2025, this segment saw a 20% quarter-on-quarter revenue increase to $339 million, accounting for 84% of the company’s total revenue.
The management has repeatedly emphasized that cloud computing giants are placing substantial orders for EML chips, achieving “record-high order volumes.” To meet the surging demand for AI infrastructure, the company is rapidly expanding its production capacity, planning to double EML chip shipments within the year. This capacity expansion plan is expected to enhance performance, with Lumentum aiming to significantly increase its output by 2-3 times by 2026.
COHR
Due to the strong growth in the AI and data center sectors, the company's stock has shown impressive momentum, rising 29% over the past year.
$COHERENT(COHR)$ 's revenue increased by 21.7% in the past twelve months, with analysts forecasting a 23% growth for FY2025.
The market maintains a bullish consensus, with the average target price indicating further upside potential. Major capital expenditures among hyperscale operators are expected to grow approximately 40% year-on-year in 2025, reaching around $322 million, with AI and data center demand continuing to be the main growth drivers in the sector.
FN
$Fabrinet(FN)$ is a company providing optical packaging and precision optical, electro-mechanical, and electronic manufacturing services across North America, Asia-Pacific, and Europe. Its operations span multiple areas, including process design and engineering, supply chain management, manufacturing, PCB assembly, advanced packaging, integration, final assembly, and testing.
Fabrinet reported its latest quarterly results on May 5, surpassing market expectations. The company achieved quarterly revenue of $870 million, a 19.2% year-on-year increase, exceeding market forecasts.
The company's stock has performed well this year, gaining support from several institutions, including T. Rowe Price, Intech Investment, and SG Americas Securities.
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