Latest Morgan Stanley CPO Report: Only 23k units shipped by 2026, market expectations overestimated by about 30x Co-Packaged Optics (CPO) is a high-speed interconnect technology that integrates optical engines with switch chips, replacing traditional pluggable optical modules. It enhances bandwidth density and reduces power consumption in AI computing clusters. Previously, the general expectation was over 200k units. According to the report's model, global CPO switch shipments are roughly as follows: ~5k units in 2024, ~15k units in 2025, ~23k units in 2026, and ~59k units in 2027. The key issue remains bottlenecks on the supply side. TSMC's PIC capacity is still ramping up, expected to reach ~10kwpm by 2026, with a target of ~25kwpm by 2027. Meanwhile, the system-level yield rate for optical engines is currently only 20%-50%. Combined with the complexity of packaging and system validation, the actual deliverable volume is significantly reduced at every stage. Optical engine shipments are estimated at only ~3,900 units in 2026 and ~77,800 units in 2027, far below the market's earlier optimistic expectations. From 2026 to 2027, CPO's revenue contribution to NVIDIA and Broadcom will be limited, making it unlikely to become a new growth curve. Core growth will still come from GPU shipments, HBM, and traditional high-speed interconnect solutions. For optical module and optical device companies like Lumentum and Coherent, related revenue contributions are less than 1%. TSMC remains the key beneficiary. The report also revises TSMC's 2027 CoWoS capacity forecast down from ~45kwpm to ~40kwpm, with overall capacity expansion and technology deployment timelines pushed back to post-2027. The report does not dismiss CPO. The core debate is not about the technical direction but rather the pace of industrialization and the practical constraints of the supply chain.