Author: BIT Broker

As the narrative of AI chip valuation reaching its peak gradually becomes a consensus in the market, funds start to look for the next new story linked to AI.

The term "light in, storage out" is a brand new narrative born in this context—storage is declining while optical communication is taking over.

1. What is optical communication? Why can't AI exist without it?

The term "light" refers to optical communication—communication technology and industry that use light signals (mainly through fiber optic) to transmit information. Its core is to accomplish the conversion between electrical and optical signals, with key products including optical modules/optical transceivers, lasers, optical detectors, fibers, and various optical devices.

This industry is not new; it has long served telecommunications backbones and traditional data center interconnections, characterized by high bandwidth, low loss, and strong interference resistance, making it suitable for high-capacity transmission over medium to long distances. Currently, its focus has shifted to high-speed interconnections within data centers (between racks and servers) and between different data centers.

The connection to AI is logical: training and inference of AI large models rely on large-scale GPU/accelerator clusters, and these chips need to frequently exchange massive amounts of data—gradients, parameters, activation values—resulting in extremely high east-west traffic. Traditional copper cables (electrical interconnections) have already hit physical limits in high-speed scenarios: short transmission distances, rapid signal attenuation, high power consumption, and severe crosstalk. When the single-channel rate rises above 100G/200G, the usable distance of copper is compressed to a very short range, unable to support the expansion of large-scale clusters.

Optical interconnects precisely solve these pain points: higher bandwidth density, longer transmission distances, and relatively better energy efficiency. It has become a crucial link in breaking through the scale bottleneck of AI clusters—GPUs determine the computing power limit, and optics determine whether these computing powers can truly connect into a network.

2. "Light in, storage out": The stock price trend has already written the answer

This narrative is established largely because the stock price trends of the two major sectors have diverged sufficiently.

In the storage sector, Micron, SK Hynix, and others have already fully traded the expectations of supply and demand tightness, price increases, and profit upgrades. As the increase in storage prices slows down and funds become crowded, exacerbated by concerns about macro data like non-farm payrolls, funds began to reduce positions, putting pressure on the sector.

On the optical communication front, however, the situation is completely different: companies like AAOI, COHR, and LITE have surged due to performance validation, accelerated upgrades from 800G to 1.6T, and confirmed demand from AI cluster expansions. Capital is flowing from the "fully priced" storage into the "more clearly sloped performance" optical communication—these three major optical communication stocks in the U.S. have risen nearly 40% to 50% since August.

3. LITE's perfect earnings report: sealing the narrative

After the close of the U.S. stock market last night, LITE delivered an earnings report that could be described as perfect, with almost no problems to be found.

Revenue and profit both exceeded market expectations, which goes without saying. What is truly stunning is the profit margin: the gross margin has surpassed 50% for the first time, while the operating profit margin reached 36.4%—among the entire optical communication sector, only LITE can achieve this level of profit margin.

Even more outrageous is the guidance: the company expects the next quarter's operating profit margin to be around 40%. It should be noted that the management previously believed that an operating profit margin of about 40% could only be reached when quarterly revenue hit $2 billion; now, with the expected revenue for next quarter only at $1.25 billion, the operating profit margin can still reach around 40%. The speed at which profitability is realized far outpaces revenue growth.

Strong earnings data, strong guidance, maintaining a year-over-year revenue growth of 20% to 25% for several consecutive quarters, while profit margins continue to expand—this is the kind of earnings report that the market loves to see.

Two details from the earnings call are also noteworthy. First, management repeatedly mentioned that the biggest issue with lasers is still insufficient capacity; market demand far exceeds supply, and the production speed is not keeping up with customer demands. Second, they specifically responded to market doubts regarding the progress of CPO: LITE's largest CPO customer not only has not delayed production plans but has instead accelerated demand, resulting in an even larger supply-demand gap for high-power lasers compared to the previous quarter.

4. In conclusion: Before chasing high optical communication, think about how to get on board

Next, another optical communication giant, COHR, will announce its latest earnings report tomorrow, which is worth paying close attention to. If COHR also delivers strong validation, can the narrative of "light in, storage out" advance further?

However, looking at it calmly, the risks are also obvious: the three major optical communication stocks have already risen by 40% to 50% in August; jumping in at this moment carries a strong flavor of chasing highs; and earnings night is always a time of volatility, if COHR's report tomorrow falls short of expectations, a high-level pullback could be significant. The awkwardness of this position lies in—being optimistic about the narrative but not wanting to take a position at the peak.

In a market with rotating narratives, being the first in isn’t always right; surviving is what matters. Equip the tools before discussing getting on board.

Risk Disclaimer: The content of this article is for market information sharing only and does not constitute any investment advice, recommendations, or trading commitments. The company earnings data, stock price trends, and industry narrative analysis mentioned are all organized from public information and the author’s personal judgment, with no guarantee of their accuracy, completeness, or timeliness; past performance does not represent future results. Financial markets are highly volatile, especially around major events such as earnings reports; related securities and derivative prices may experience significant fluctuations. Investors should fully understand the risks involved and make independent judgments based on their financial situation, risk tolerance, and investment objectives, assuming the risks and consequences of investment decisions.

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