If last year's value chain business was the memory sector, the optics sector is starting to take shape towards 2027. This week he supported that thesis with both a printed example and a policy catalyst. $AAOI | Applied Optoelectronics increased revenues 86% to a record $191.9 million and achieved its fifth consecutive record quarter of profitability. Data center played a big role in this increase, with a 140% increase to $107.7 million; Sales of 800G transceivers more than doubled from the previous quarter, making up the majority of the market. Management forecast revenues of $255-290 million for the next quarter and around $1.1 billion for the full year, stating that the order book is full until mid-2027, the only limit being how quickly they can set up production lines and procure components.
$ANET | Arista's third forecast increase of the year ($12.6 billion) and $ALAB | Considering Astera Labs' record quarterly performance (+104%), the message is consistent: Money is flowing into the data center's connective fabric, not just the accelerators at the heart of the data center. Then politics gave an impetus to this story.
The FCC is drafting a rule that would ban the use of new Chinese-made optical transceivers — tiny components that convert electrical signals into light and back into electricity and transfer data between AI racks on a large scale — in U.S. data centers. China's Innolight alone holds about 27% of the global market, and shares of optical makers have soared on concerns that demand will be diverted to Western suppliers.
However, this rise ignored supply mathematics. Two US companies positioned to fill the gap, $LITE | Lumentum and $COHR | Coherent can't afford this production overnight, and the high-speed lasers inside every competitive transceiver rely heavily on indium phosphide sourced from China.
It is easy to cut off the supply; Replacing it with a new one is a problem that takes years. This is the type of structural bottleneck that realigns the price of an entire category of components rather than realigning market share.
