Morgan Stanley is positive on the long-term CPO opportunity and thinks GlassBridge is unlikely to disrupt the mainstream FAU supply chain in the short term

Overview

This report focuses on the semiconductor CPO supply chain in Asia-Pacific and Greater China, with emphasis on differences between Corning GlassBridge and traditional V-Groove FAU, TSMC COUPE/PIC capacity planning, CPO insertion-test progress, and revenue and valuation changes for FOCI and AllRing in the CPO and advanced packaging chain. The report is generally bullish on CPO long term but views GlassBridge in the short term more as a connector-style glass-waveguide architecture for high-density optical interconnect rather than an immediate replacement for all FAU applications.

Core views

Core views include: first, GlassBridge is a strong solution but still far from large-scale mass production, and in the coming years the current mainstream TSMC COUPE as well as key customers such as NVIDIA, AMD, and Ayar Labs are more likely to continue using grating-coupling solutions that are easier to mass-produce; second, TSMC PIC capacity expansion and improved Insertion 2 test efficiency support gradual mass production of CPO starting in the second half of 2026; third, FOCI will benefit from projects including the NVIDIA Spectrum CPO switch and AMD MI500 series, but short-term profitability is weighed down by legacy business transition; fourth, AllRing is benefited by multiple advanced packaging tracks including CoWoS, CPO, SoIC, and CoPoS, with an upward revision to earnings forecasts and maintained target price.

Analysis framework

The report combines supply-chain research, bottom-up revenue decomposition, capacity planning, scenario valuation, and company financial forecasting. At the industry level it tracks TSMC PIC, CoWoS, SoIC, and CPO switch shipments; at the company level it separately breaks down FOCI’s FAU/CPO customer revenue contribution, capex and capacity plans, and AllRing’s revenue mix and gross-margin contribution across CoWoS, CPO, SoIC, and CoPoS equipment.

Methodology notes

• Valuation methodResidual income model (RI)

  AllRing target price valuation

  The AllRing target price of NT$1,580 is based on a residual income valuation model, with key assumptions including an 8% cost of equity, 2.0% risk-free rate, 1.0 beta, 6.0% market risk premium, 16% medium-term growth rate, and 4.5% terminal growth rate.

• Industry sizingBottom-up revenue decomposition

  CPO and advanced packaging revenue estimation

  The report decomposes FOCI and AllRing revenue by customer projects, equipment segments, capacity expansion, and shipment cadence, for example forecasting AllRing by subsections such as CoWoS, CPO, Flip Chip, SoIC, and other businesses.

• Scenario analysisBull/Base/Bear risk-return framework

  Target price range and upside/downside drivers

  The report evaluates the valuation impact of variables such as revenue CAGR, gross margin, market share, CoWoS expansion, CPO adoption, and SoIC migration under bull/base/bear scenarios.

Asset mapping & comparison

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

• AllRing Tech Co. (6187.TWO)

  Advanced packaging and CPO equipment beneficiary

  Strengths

  Benefits from CoWoS expansion, CPO equipment, SoIC WoW dispensation, and CoPoS readiness; CPO equipment gross margin is relatively high, with the report citing around 55-60%.

  Weaknesses

  SoIC equipment ramp may be delayed to some extent by the pace of TSMC AP7 CoWoS expansion.

  Comparison

  The report expects 2027e implied P/E of around 40x, close to SoIC peers and below CPO peers.

  Risks

  COWoS expansion slowdown, declining WoS segment share, and slower adoption of SoIC and silicon photonics.

• FOCI Fiber Optic Communications Inc (3363.TWO)

  FAU and CPO optical-interconnect supply-chain beneficiary

  Strengths

  Expected to start CPO mass-production revenue in July 2026, with the NVIDIA Spectrum CPO switch as the main driver; additional contribution may come after 2027 from the AMD MI500 series and more customers.

  Weaknesses

  Short-term drag from capacity transfer from Hsinchu to Thailand, SiPh/CPO line ramp, and one-time stock-issuance costs from disruptive testing.

  Comparison

  The report expects FOCI to hold about a 40% share in NVIDIA Spectrum-X-related FAU supply, with TFC and Senko as other major FAU suppliers.

  Risks

  Near-term downward revision to legacy-business revenue, insufficient evidence of mass-production customers and shipments, and slower-than-expected margin recovery.

• TSMC

  Core manufacturer for CPO COUPE platform, PIC capacity, and advanced packaging

  Strengths

  PIC capacity planning increases from 10 to 15kwpm in 2026 to at least 25kwpm by 2028; CoWoS, SoIC, and COUPE platforms determine the pace of multiple supply-chain segments.

  Weaknesses

  Limited resources may mean that major mass-production customers in 2026-2027 are concentrated in NVIDIA, Broadcom, and AMD.

  Comparison

  The report treats TSMC as the key capacity bottleneck deciding whether CPO projects can scale to mass production.

  Risks

  PIC yield, insertion-test efficiency, COUPE customer onboarding pace, and advanced packaging expansion progress may not meet expectations.

• AMD

  Potential CPO and silicon-photonics customer

  Strengths

  The report expects AMD MI500-series FAU shipments to possibly start from the second half of 2027, and sees MI550 or MI650 rack systems exploring scale-up CPO versions in 2027/2028.

  Weaknesses

  Whether projects are adopted still depends on development progress and mass-production validation.

  Comparison

  Along with NVIDIA and Broadcom, it is one of the potentially key customers for TSMC COUPE in 2026-2027.

  Risks

  Project onboarding delays and uncertainty around CPO version adoption.

• NVIDIA

  Core customer for CPO demand and advanced packaging demand

  Strengths

  Spectrum-X is expected to be the mainstream scale-out CPO switch product in 2026; the report expects optical-engine output of 600k-1m units and total switch shipments of about 20k units.

  Weaknesses

  Some next-generation optical I/O or interposer optical-engine solutions remain in exploratory stages.

  Comparison

  NVIDIA is viewed as a key demand source for CPO revenue at both FOCI and AllRing.

  Risks

  Changes in mass-production pacing, architecture choices, and supply-chain qualification.

Key data

• TSMC PIC capacity roadmap10kwpm in 2Q26; 15kwpm in 4Q26; at least 25kwpm in 2028The report says current PIC capacity is around 500 wafers per month and expects further scaling as yield improves.
• CPO switch shipment forecast23k in 2026; 59k in 2027; 200k in 2030The report states the implied CAGR for 2024-2030 is about 144%.
• Insertion 2 test efficiencyImproved from one wafer per day in the second half of 2025 to six hours per wafer currentlyThe 6-12 month target remains 3-4 hours per wafer, and it is still considered a key bottleneck for CPO mass production.
• FOCI mass-production paceCPO mass-production revenue is expected to start in July 2026, contribute from Q3 and ramp into 2027This is mainly tied to the NVIDIA Spectrum CPO switch; AMD MI500-series FAU shipments are expected to start from the second half of 2027.
• AllRing CPO share of revenue11% in 2026; 19% in 2027; 26% in 2028The report says AllRing has already entered FAU optical-engine coupling and FAU AOI equipment in NVIDIA’s CPO supply chain, and may capture the dispensation step after Insertion 3.
• AllRing CoWoS revenueNT$7,405mn in 2026; NT$11,305mn in 2027; NT$11,305mn in 2028The report expects CoWoS-related revenue to account for 79% of AllRing’s 2026 total revenue.
• AllRing earnings forecast revisions2026 EPS raised by 15%; 2027 EPS raised by 2%The upward revisions reflect opportunities in advanced packaging including CoPoS, CoWoS, and CPO, and a better product mix.
• FOCI earnings forecast revisions2026E EPS reduced from NT$0.70 to NT$-0.41; 2027E EPS reduced from NT$16.76 to NT$16.36The downward revisions are mainly due to weaker-than-expected 1Q26 and 2Q26 performance, capacity transfer from the Hsinchu plant to the Thailand plant, and margin pressure during SiPh/CPO line ramp-up.
• AllRing target priceNT$1,580The base case is based on the residual income model; bull case is NT$2,200 and bear case is NT$640.
• FOCI target priceNT$708The report section lists FOCI Fiber Optic Communications Inc (3363.TWO) target price at NT$708.

Impact & implications

The report’s industry implication is constructive: the path for CPO moving from proof of concept to mass production is becoming clearer, and TSMC PIC expansion, test-efficiency improvement, and execution progress from key customers such as NVIDIA and AMD/Broadcom are expected to drive demand for FAU, optical-engine coupling, AOI, dispensation, and advanced packaging equipment. GlassBridge may reduce demand for some lower-end or high-density FAU direct-attach use cases over the long term, but near-term impact on mature FAU vendors such as TFC and FOCI is limited; AllRing has multiple growth drivers due to exposure across CoWoS, CPO, SoIC, and CoPoS.

Risks

• If GlassBridge matures faster and is adopted by TSMC COUPE or key customers, it could gradually compress part of the total addressable FAU market.
• CPO insertion testing, PIC yield, and optoelectronic co-validation may still become mass-production bottlenecks.
• If expansions of TSMC PIC, CoWoS, SoIC, and CoPoS are slower than expected, supply-chain revenue realization will be affected.
• Uncertainty remains around FOCI’s capacity transfer, SiPh/CPO new-line ramp-up, and margin recovery.
• AllRing faces risks of slower CoWoS expansion, declining WoS market share, peer competition, and decelerated technology migration pace.
• CPO mass-production timing for customer projects such as NVIDIA, AMD, Broadcom, Marvell, MediaTek, and Ayar Labs may be delayed.

What to watch

• Whether TSMC COUPE platform shows any real projects adopting GlassBridge.
• Execution progress on TSMC PIC capacity from 10kwpm to 15kwpm and at least 25kwpm by 2028.
• Whether Insertion 2 EPIC wafer test time can reach the 3-4 hour target over the next 6-12 months.
• Mass-production signals for NVIDIA Spectrum-X, Rubin Ultra rack, and AMD MI500/MI550/MI650 related CPO projects.
• FOCI CPO mass-production revenue in Q3 2026, NRE revenue recognition, and conversion beyond 10 prototype customers.
• Order visibility for AllRing in CPO dispensation, FAU AOI, and FAU optical-engine coupling equipment, as well as CoWoS and SoIC equipment draw pace.