AI Connectivity Bottlenecks Spawn New Opportunities for CPO and High-End PCB

Overview

This report deeply analyzes the evolution of connectivity technology within AI data centers and its impact on the supply chain. With the exponential growth of bandwidth demand for data movement in AI model training, data center architectures are shifting from 'compute-constrained' to 'connectivity-constrained'. The report focuses on the rise, challenges, and timeline of Co-Packaged Optics (CPO) technology, while analyzing the short-term dominance of copper connectivity and the resulting explosion in demand for high-end Printed Circuit Boards (PCB), High Density Interconnect (HDI), and ABF substrates. The report argues that upgrading connectivity technology will reshape supply chain value distribution, benefiting technical leaders with deep manufacturing expertise and ecosystem control.

Core views

Connectivity Bottlenecks and Technology Solution Evolution: Data movement in AI data centers has become a primary performance bottleneck. Currently, copper connectivity is mainly used for intra-rack (Scale-up) short-distance transmission, while optical connectivity, thanks to high bandwidth and low loss, remains mainstream for inter-rack (Scale-out). As rates evolve towards 1.6T and 3.2T, power consumption and signal integrity issues with traditional pluggable optical modules are becoming increasingly prominent, driving the industry towards Co-Packaged Optics (CPO) transformation. CPO significantly improves energy efficiency and signal integrity by packaging the optical engine with the chip, but it faces challenges in manufacturing yield, testing complexity, and maintenance serviceability (non-hot-pluggable). CPO Deployment Timeline and Competitive Landscape: The report expects CPO to start small-scale deployment in Scale-out networks in H2 2026, while Scale-up scenarios will see slower adoption due to higher reliability verification requirements. In the short term, Linear Pluggable Optics (LPO) as a transitional solution can reduce power consumption by about two-thirds. In Scale-up scenarios, copper connectivity (including Co-Packaged Copper CPC) will remain mainstream from 2026-2028, benefiting manufacturers like Luxshare. NVIDIA and Broadcom are pioneers in the CPO field, where NVIDIA's solution is closer to Near-Package Optics (NPO), retaining the detachability of optical engines to improve serviceability; Broadcom adopts a more integrated solution. TSMC's COUPE technology is expected to become the mainstream platform for CPO manufacturing. Value Reassessment of PCB and Substrate Supply Chain: AI servers' requirements for high-speed signal transmission have driven a significant increase in multi-layer PCB, HDI, and ABF substrate content value. In 2025, multiple PCB and material suppliers have achieved 50-100% revenue growth. Tight supply of key raw materials such as T-glass, ABF film, and high-end copper foil further consolidates the bargaining power of upstream material suppliers. Although increased competition after the end of 2026 may slow margin expansion, new product cycles (such as mid-backplane and backplane) and ASIC demand growth will continue to support industry leaders' earnings momentum. Ibiden and Unimicron are major substrate suppliers, VGT is the main HDI supplier, and Shengyi Tech etc. are pure PCB material suppliers.

Analysis framework

The report adopts a top-down industry chain analysis method, starting with the macro trend of AI data center architecture changes to identify 'connectivity' as the new core contradiction. Then, by comparing the performance, power consumption, cost, and serviceability of copper connectivity, pluggable optical modules, LPO, NPO, and CPO technical routes, derive the logic of timeline and market share evolution for each technology. At the supply chain level, the report dissects the value chain of CPO and high-end PCB, analyzing the technical barriers, supply-demand landscape, and major players in each link from chip manufacturing (TSMC), optical engines, lasers, Fiber Array Units (FAU) to PCB substrates (copper foil, resin, fiberglass cloth). Finally, combining capital expenditure plans and capacity expansion situations, evaluate the earnings sustainability and investment value of each link.

Methodology notes

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Transmission in Industry Chain

  Supply Chain Value Transmission Analysis

  By analyzing the transformation of AI data center connectivity technology, the report tracks how value transmits from downstream cloud service providers to upstream chip manufacturing, optical components, PCB, and raw material segments, identifying sub-sectors benefiting from technology upgrades and high barriers.

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Key Technology Supply and Demand Balance Analysis

  Addressing key bottleneck areas such as T-glass, ABF film, lasers, etc., the report analyzes the matching degree of the supply side's capacity expansion rhythm with the demand side's explosive growth of AI servers, judging price trends and earnings momentum.

• Competition and Strategy FrameworkMoat / competitive advantage

  Technical Barriers and Ecosystem Control Power

  The report emphasizes that in the CPO and high-end PCB fields, enterprises with deep manufacturing heritage, yield control capabilities, and ecosystem control power (such as TSMC, Broadcom) possess wider moats, enabling them to better resist competition and earn excess profits.

Asset mapping & comparison

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

• NVIDIA (NVDA.US)

  Main driver of CPO technology, its GPUs and switch chips are the core drivers of connectivity upgrades.

  Strengths

  Technological leadership, strong ecosystem, CPO solution focuses on serviceability (NPO path).

  Comparison

  Compared to Broadcom, NVIDIA tends to retain the detachability of optical engines.

  Risks

  CPO deployment progress falls behind expectations, competition intensifies.

• Broadcom (AVGO.US)

  Leading supplier of CPO switch chips, has released multiple generations of products.

  Strengths

  Deep CPO technology accumulation, obvious cost advantage, cooperated with customers such as Tencent, Meta.

  Weaknesses

  Early solutions had poor serviceability, supply chain concentration risk.

  Comparison

  Introduced more integrated CPO solutions earlier than NVIDIA, but is moving towards TSMC platforms.

  Risks

  Technology iteration risk, high customer concentration.

• TSMC (TSM.US)

  Core platform provider for CPO manufacturing, COUPE technology expected to become industry standard.

  Strengths

  Advanced packaging technology leadership, strong ecosystem control.

  Comparison

  Irreplaceable status in the CPO manufacturing field.

  Risks

  Technology complexity leads to slow yield ramp.

• Lumentum (LITE.US)

  Main external laser source supplier for CPO, has obtained hundreds of millions of dollars in orders.

  Strengths

  Leading technology, high customer recognition.

  Comparison

  Occupies a leading position in the CPO laser field.

  Risks

  Technology route change risk.

• Luxshare (Luxshare Precision)

  Main beneficiary of copper connectivity (including CPC), mainstream solution supplier for Scale-up scenarios.

  Strengths

  Strong manufacturing capability, close customer relationships.

  Comparison

  Has significant advantages in the copper connectivity field.

  Risks

  Risk of copper connectivity technology being quickly replaced.

• Ibiden / Unimicron

  Major suppliers of AI server ABF substrates.

  Strengths

  High technical barriers, scarce capacity.

  Weaknesses

  Large capital expenditure, depreciation pressure.

  Comparison

  One of the few manufacturers globally capable of providing high-end AI substrates.

  Risks

  Risk of overcapacity, technology iteration risk.

Key data

• Optical Module Market SizeOver $23 billion in 202550% YoY growth vs 2024
• Ethernet Optical Module Growth RateCAGR 59% from 2024-26Subsequently decelerates to 15% from 2026-30
• 800G Optical Module ShipmentsReaches 10 million units in 2025Record high; took 10 years for 100G modules to reach this scale
• CPO Power Consumption Advantage3.5x higher energy efficiency than pluggable solutionsBased on NVIDIA data; signal integrity also up 63x
• CPO Deployment TimelineH2 2026Expected to start small-scale in Scale-out networks
• PCB/Material Supplier Revenue Growth50-100%Growth realized by some suppliers in 2025 due to AI server demand
• IC Substrate Market Share~20%Expected overall share in PCB market in 2027

Impact & implications

The report believes that the evolution of AI connectivity technology will bring structural growth opportunities to the supply chain. For investors, the focus should not be solely on which technology ultimately wins, but on how each technology captures value within specific time windows. CPO's long-term potential is huge, but it faces challenges in the short term; LPO and copper connectivity remain important transitions and supplements. High-end PCB and substrate manufacturers will directly benefit from the increase in AI server content and the simultaneous increase in volume and price brought by material shortages. Leading companies with technological leadership advantages and ecosystem control (such as TSMC, Broadcom, NVIDIA, and their core suppliers) will command higher valuation premiums.

Risks

• CPO technology yield ramp falls short of expectations, causing deployment delays.
• CPO serviceability issues (non-hot-pluggable) lead to low acceptance by cloud service providers.
• Shortage of key materials (such as T-glass, InP substrates) constrains capacity.
• Industry competition intensifies after 2026, putting pressure on PCB and optical module profit margins.
• Advances in copper connectivity technology extend its lifecycle, squeezing CPO market space.

What to watch

• Actual deployment scale of CPO in Scale-out networks and customer feedback in H2 2026.
• Technical details and mass production progress of NVIDIA and Broadcom's next-generation CPO products.
• Capacity expansion status and price trends of key materials such as T-glass and ABF film.
• Changes in LPO technology penetration rate in data centers.
• Capital expenditure plans and capacity utilization rates of major PCB and substrate manufacturers.