Three leading optical module companies, collectively known as “Yi Zhong Tian,” have added more than one trillion yuan in combined market value since April 2025, fueled by expectations of surging demand from artificial intelligence and data center upgrades.
Zhongji Xuchuang surged 428%, Xinyisheng climbed 410%, and Tianfu Communication rose 284% במהלך the rally. However, sharp volatility emerged in June 2026 as traders rotated out of co-packaged optics (CPO) stocks amid heavy turnover. Zhongji Xuchuang dropped nearly 8% on June 5, while Xinyisheng approached its daily limit-down on June 11, prompting renewed scrutiny over valuations and sustainability.
Xinyisheng shows lowest valuation but faces structural risks
Xinyisheng stands out for its relatively low valuation, with a PEG ratio of 0.30 and a dynamic price-to-earnings ratio of about 22.8 times based on 2026 forecasts. Net profit in 2025 rose roughly 2.5 times year-on-year, with additional momentum in the fourth quarter. Gross margins remain above 47%, supported by vertically integrated operations.
Despite these metrics, the company’s valuation reflects underlying vulnerabilities. Around 78% of revenue is generated overseas, exposing it to trade policy risks, while reliance on a limited number of major clients raises concerns about stability. The stock has still gained more than 79% this year, and preparations for a Hong Kong listing are underway as the company seeks to diversify funding and reduce geographic exposure.
Zhongji Xuchuang dominates scale but carries geopolitical risk
Zhongji Xuchuang continues to lead in scale and profitability. In the first quarter of 2026, revenue reached 19.496 billion yuan and net profit hit 5.735 billion yuan, surpassing its total for all of 2024. Gross margin for optical transceiver modules rose to 42.61%, up from 34.65% in 2024.
The company controls more than half of Nvidia’s 800G module supply and is expected to capture 50% to 60% of the next-generation 1.6T market. However, this leadership is reflected in a high valuation, with its rolling price-to-earnings ratio between 73 and 74 times.
Geopolitical exposure remains a key concern. The U.S. Department of Defense added the company to the “1260H list” in June 2026. While operations have not been directly affected, overseas revenue accounts for 86.8% of total income, leaving the stock sensitive to policy shifts and global tensions.
Tianfu Communication offers upstream exposure but misses expectations
Tianfu Communication operates upstream in the value chain, supplying optical engine components rather than finished modules. This positioning supports gross margins above 50% and provides leverage to emerging architectures such as CPO and NPO.
However, earnings growth has proven less responsive to the recent demand surge. The company reported first-quarter net profit of 490 million yuan, well below market expectations of 780 million to 820 million yuan. Its rolling price-to-earnings ratio of about 122 times suggests that significant future growth is already priced in, raising the bar for future performance.
Upstream chipmakers capture core profits
Market analysis indicates that the highest-value segment of the optical supply chain lies upstream in laser and electronic chips rather than module assembly. U.S.-based suppliers such as Lumentum and Coherent have reported strong growth driven by demand for these components.
Lumentum posted revenue growth of 58% year-on-year in fiscal first-quarter 2026, with margins improving to 34%. Coherent reported revenue of 1.81 billion dollars, up 21%, with data center and networking accounting for 75% of its business and gross margin reaching 39.6%.
Both companies are expanding production of compound semiconductors used in continuous-wave laser sources for CPO systems. Coherent is doubling indium phosphide capacity at its Texas facility to support future Nvidia deployments, highlighting the strategic importance of upstream technologies.
Domestic chip progress could shift the balance
China’s optical sector may see a shift if domestic chipmakers close the technology gap. Yuanjie Technology has made progress in 100G EML chips, completing customer verification in 2025 and beginning mass production in 2026. Its high-power continuous-wave light sources have also entered large-scale delivery, driving first-quarter revenue to more than triple.
Further breakthroughs could allow local module manufacturers to capture more value within the supply chain and reduce dependence on foreign suppliers.
Outlook shifts from valuation to value chain control
The recent share price swings indicate a transition from momentum-driven gains to a more selective market environment. Traders are increasingly differentiating between companies based on their position in the value chain, growth sustainability, and exposure to geopolitical risk.
Demand for next-generation 1.6T optical modules is المتوقع to reach 15 million to 20 million units in 2026, representing a roughly 600% increase year-on-year, driven by deployments tied to systems such as Nvidia’s GB200.
While Zhongji Xuchuang holds a dominant market position, its high valuation and external risks remain constraints. Xinyisheng offers lower valuation but faces structural uncertainties tied to overseas markets. Tianfu Communication provides upstream exposure but must deliver stronger earnings to justify its premium.
Over the longer term, the sector’s value may increasingly depend on whether companies can move beyond module assembly and capture profits in upstream chip production, where demand continues to outpace supply.
For deeper macro context behind these valuation swings, explore traditional vs. decentralized finance dynamics shaping capital flows today.
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