Written by: Rita

The data communication market is expected to expand at a compound annual growth rate of 28% over the next five years, reaching a scale of over $70 billion by 2030. The 1.6T products will be the largest source of incremental growth, with a compound annual growth rate of about 120%, contributing approximately $40 billion by 2030. Morgan Stanley pointed out in its research report on August 6 that after incorporating the NPO/CPO market into the addressable market calculation, the scale is expected to exceed $18 billion by 2030, accounting for over 25% of the entire data center communication market. The optical module market is experiencing a long-term structural turning point from pluggable to co-packaged modules, with Google expected to become the largest purchaser of optical devices by 2030, and Meta leading the NPO/CPO deployments. In terms of short-term earnings reports, COHR has the highest performance certainty, LITE has significant controversy but its valuation has provided a safety margin, and FN needs guidance for the third quarter to boost confidence.

COHR has the most solid fundamentals, LITE is overvalued due to controversy

COHR has the highest certainty of performance. Product capacity is gradually increasing, and revenue and profit margins are expected to improve continuously in the second half of the year. The growth momentum in telecommunications and data center infrastructure is strong, and the expansion of optical modules and CPO business is progressing as expected. Demand in the industrial sector is improving, with most covered companies confirming this trend, which is conducive to demand growth and product structure optimization in the second half of the year. COHR's current stock price corresponds to an expected earnings per share of 23 times for the fiscal year 2028, with accelerated growth and product structure optimization likely to drive performance above expectations.

Market concerns about LITE are somewhat overstated. The main controversies are focused on three aspects: the increased revenue from the lower-margin TRx business may drag down gross margins, the increase of indium phosphide (InP) supply from Chinese competitors poses long-term risks, and the potential delay in CPO capacity expansion. Morgan Stanley believes these concerns will not be significantly reflected in the upcoming earnings report. The accelerated growth of Google’s TRx business pressuring gross margins will be offset by the growth of higher-margin businesses such as telecommunications/DCI and EML. The capacity expansion guidance for CPO and optical circuit switching systems will meet expectations. Currently, LITE's valuation is only 22 times the expected earnings per share for the fiscal year 2028, and investor sentiment is cautious before the earnings report, which in turn provides room for a rise after performance exceeds expectations.

FN is the most difficult to predict among the three. The performance for the June quarter may be lackluster, with no significant improvements likely in EML supply. The key lies in the guidance for the September quarter, where management needs to emphasize accelerating business growth, particularly in the optical module and high-performance computing sectors. The optical module related EML capacity associated with Nvidia will see an increase, and Amazon Web Services’ optical module business will continue to grow, with the Trainium/HPC business expected to achieve $150 million in revenue. However, FN's current stock price corresponds to an expected earnings per share of 23 times for the fiscal year 2028, similar to COHR and LITE, but with relatively lower earnings growth potential, making its risk-reward ratio less favorable than the other two.

1.6T drives market explosion, pluggable leads growth before 2028

LightCounting's latest forecast has raised the overall compound annual growth rate of the data communication market to 28%, expecting the scale to grow from $20 billion in 2025 to over $70 billion by 2030. The 1.6T is the core of growth, with a compound annual growth rate of about 120%, contributing approximately $40 billion by 2030. The 3.2T will start contributing from 2027, expected to increase to $14 billion by 2030. The 800G will continue to expand before 2028, then the growth rate is expected to slow down.

The latest forecast has been raised by about 15% overall, with the 1.6T market accounting for about 35% of the incremental growth, while the 800G and other markets remain relatively flat.

Pluggable transceivers lead growth before 2028. From 2026 to 2028, the pluggable market will increase by $14 billion, while the incremental growth of LRO/LPO, NPO, and CPO will be less than $3 billion each. From 2028 to 2030, the pattern will switch, with NPO and CPO growing by $9 billion and $6 billion respectively, and the incremental growth of pluggable and LRO/LPO will be less than $2 billion each.

After NPO is included in the addressable market calculation, the forecast for NPO/CPO has been significantly raised. Compared to April, the average forecast for 2026 and thereafter has been raised by over 50%. By 2030, the combined total of NPO and CPO will exceed $18 billion, with about 40% of deployments used for scale expansion scenarios. The distribution of CPO between scale expansion and horizontal expansion is more uniform, whereas NPO incurs additional delays because signals need to be transmitted through longer copper wires, leading to relatively limited applications in scale expansion scenarios, with an expected 33% of NPO deployments related to scale expansion by 2030.

Google becomes the largest buyer, Meta leads in NPO/CPO

By 2030, Google is expected to become the largest customer for optical devices in data center communication. Meta and Google will also become top customers in the NPO/CPO field. The top five cloud service providers in the United States are expected to expand at a compound growth rate of 29%, in line with the overall market growth rate, collectively accounting for over 60% market share. The growth rates of Google and Meta are expected to exceed the industry average. By 2030, Meta will lead in NPO/CPO deployments, followed by Google, Microsoft, Amazon, and Oracle.

Nvidia will regain market share in the short term due to its dominant position in 1.6T, with its overall market share in data centers expected to rebound to 25% by 2026, holding over 70% of the 1.6T market. However, in the long term, as cloud service providers increasingly source products from third parties, Nvidia’s market share is expected to decline from 18% in 2025 to 12% by 2030.

The telecommunications and data center interconnection market is expected to grow at a compound annual growth rate of 18% by 2030, increasing in scale from $4 billion in 2025 to $9 billion. The 1.6T is the main driver, with a compound growth rate of over 100%, expected to contribute over $3 billion by 2030. The 800G is expected to have a compound growth rate of 40%, contributing about $3 billion. The latest forecasts have been raised by an average of 11%, mainly from the high-speed optical module market in ZR packaging.

The long narrative of the optical module market is switching, with pluggable leading growth before 2028, while NPO and CPO will take over the increments after 2028. Google and Meta are redefining the customer landscape, and Nvidia's short-term recovery in 1.6T market share will not reverse the long-term trend.

Disclaimer

This article is a整理和解读 of third-party brokerage research reports (Morgan Stanley, August 6, 2026) by Chaoxiang Research, combined with the整理 of publicly available market information. The ratings, target prices, earnings forecasts, and related judgments quoted in this article are solely the views of the analysts from that brokerage, representing their respective institutions and do not reflect the views of Chaoxiang Research, nor do they constitute any investment advice.

The market has risks, and decisions should be independent. This article should not be used as the basis for buying or selling any securities.