Goldman Sachs raised InnoLight's target price to Rmb1,187 and maintained Buy

Overview

This report is Goldman Sachs company research and a rating revision for InnoLight. After updating the global AI server and optical module TAM, the firm raised InnoLight's 2026-2028 earnings forecasts and increased the 12-month target price from the prior level to Rmb1,187, while maintaining a Buy rating. The core logic is that AI data center demand drives optical interconnect demand growth, combined with migration to 1.6T/3.2T optical modules and a higher share of silicon-photonic modules, improving revenue, gross margin, and valuation anchors.

Core views

Goldman Sachs believes InnoLight has a leading market position in high-speed optical modules, and growth in AI server shipments and higher compute density per server rack will continue to expand optical module demand. The shift of the product mix to SiPh and to 1.6T-and-above high-speed modules is the key driver of the company’s ongoing gross margin improvement. The report expects further migration from Rubin Ultra to 3.2T and more ASICs adopting 1.6T-and-above solutions, which would further strengthen the company’s earnings leverage in 2027-2028.

Analysis framework

The report uses a combination of earnings forecast upgrades, comparison with Bloomberg consensus expectations, historical valuation range and peer telecom equipment P/E-to-fundamentals relationships. Goldman Sachs raised the target P/E from 28.0x to 34.2x and uses the 2027E P/E as the valuation base for the 12-month target price.

Methodology notes

• Valuation methodsNear-term P/E valuation method

  Derive 12-month target price using 2027E P/E

  The report derives a 12-month target price of Rmb1,187 based on a 34.2x 2027E P/E, and this multiple is based on the relationship between peer telecom equipment transaction P/Es and future earnings growth and operating margin.

• Peer comparisonP/E and forward fundamental comparison

  Derive target multiple from net profit year-on-year growth and operating margin

  Goldman Sachs uses InnoLight's 2027E-2028E average net profit year-on-year growth of 48% and average operating margin of 41%, and removes abnormal upstream supplier outliers affected by CPO upgrade premiums, resulting in a 0.4x target PEG&M ratio and a 34.2x target P/E.

• Earnings forecastRevenue, gross margin and product mix upgrades

  Higher share of high-speed modules and SiPh revenue

  The report raised 2026-2028E revenue forecasts by 11%/19%/22% and net profit forecasts by 7%/24%/29%, mainly reflecting higher AI server and optical module TAM, higher share of high-end AI server shipments, and high-speed product mix upgrades.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• InnoLight

  Core coverage target

  Strengths

  Leading position in high-speed optical modules, AI server demand pull-through, product mix upgrading to SiPh and 1.6T-and-above, and continuous gross margin expansion.

  Weaknesses

  Earnings forecasts are sensitive to AI server shipments, optical module demand, and high-end product penetration.

  Comparison

  Goldman Sachs 2026E net profit is broadly in line with Bloomberg consensus, but 2027E net profit is 15% above consensus, indicating a more optimistic view on mid-term revenue and margins.

  Risks

  Demand for 800G+ may fall short of expectations, rollout of new optical components may be slower than expected, market share normalization above 800G may occur faster than expected, geopolitical risk, and worsening component supply conditions limiting shipment growth.

Key data

• Target PriceRmb1,18712-month target price, raised by 50%.
• RatingBuyGoldman Sachs maintains a Buy rating.
• 2026-2028E Net profit forecast upgrade7%/24%/29%Mainly driven by higher revenue and gross margin.
• 2026-2028E Revenue forecast upgrade11%/19%/22%Reflects higher AI server and optical module TAM and improved mix of high-end server shipments.
• 4Q25 Gross margin44.5%The 8th consecutive quarter of gross margin expansion since 1Q24.
• 2028E share of optical module revenue above 1.6T92%32% in 2025; the report expects specification upgrades to significantly lift the share of high-speed products.
• 2028E SiPh module revenue share98%92% in 2025; silicon-photonic modules continue to contribute more.
• Target P/E34.2xHigher than prior 28.0x, between historical mean + 1 standard deviation and peak.
• 2027E Goldman Sachs net profit vs Bloomberg consensusup 15%Mainly due to more optimistic revenue and margin assumptions.

Impact & implications

If the report's assumptions materialize, InnoLight's investment thesis would move from pure AI optical module demand growth to broader concurrent improvement in high-speed product mix, SiPh share, and earnings quality. The higher target multiple suggests the market may assign a higher valuation premium for the company's leading position in the 1.6T/3.2T migration cycle.

Risks

• Demand for 800G+ optical modules is below or slower than expected.
• Ramp-up of new optical devices is slower than expected.
• Normalization of market share above 800G occurs faster than expected.
• Geopolitical risk.
• Component supply conditions worsen, limiting shipment growth.

What to watch

• Pace of AI server shipments and changes in the share of high-end AI servers.
• Production ramp, migration, and customer adoption progress of 1.6T and 3.2T optical modules.
• Share of SiPh optical module revenue and its contribution to gross margin.
• Whether the company can continue the quarterly gross margin expansion trend.
• Whether the gap versus Bloomberg consensus continues to widen after 2027E.
• Whether upstream supply-chain premiums in the CPO era affect peer valuation references.