Woofun AI reports that Citigroup issued a research report on June 24, revising its forecast for the global AI optical interconnect market upward to $920 billion by 2028. The investment bank anticipates a compound annual growth rate of approximately 65% between 2025 and 2028, prompting significant price target adjustments for key industry players including Neophotonics, O-Net, and II-VI Incorporated. This bullish outlook is fundamentally anchored in the explosive expansion of AI data centers, which necessitates massive data shuttling between GPUs and ASICs. Consequently, connectivity requirements between racks, switches, and servers are escalating, making high-speed optical modules, silicon photonics, and laser chips indispensable links for efficient computational throughput.

The financial trajectory relies on a dual engine of volume expansion and price appreciation. Citigroup projects the average selling price of optical interconnects will grow at a CAGR of about 18% from 2025 to 2028, fueled by the adoption of high-speed products such as 800G, 1.6T, and 3.2T variants. Simultaneously, global shipment volumes are expected to surge from 110 million units in 2025 to 300 million units in 2028, representing a CAGR of roughly 40%. The structural shift toward data center dominance is equally pronounced, with the data center business proportion of total shipments projected to climb from 71% in 2025 to 89% in 2028. Within this sector, the penetration of high-speed products exceeding 800G is forecast to jump from 37% in 2025 to 89% in 2028, signaling a rapid obsolescence of legacy speeds.

Specific transceiver categories exhibit even more aggressive growth metrics. The 1.6T transceiver composite shipment CAGR is projected to reach 215% from 2025 to 2028, while 3.2T shipments are expected to rise from 4 million units in 2027 to 35 million units in 2028. Emerging packaging technologies like Co-Packaged Optics (CPO) and Near-Packaged Optics (NPO) face divergent scenarios based on cloud provider demand and platform architecture deployment by NVIDIA and Google. In a base scenario, CPO and NPO shipments are expected to reach 18 million and 56 million units respectively by 2028, whereas an optimistic scenario envisions figures of 33 million and 116 million units.

Woofun AI data shows that silicon photonics penetration in high-speed optical modules is predicted to increase from 29% in 2025 to 60% in 2028, fundamentally altering the manufacturing landscape.

The underlying component demand reflects this systemic acceleration. Total demand for optical chips in 2028 is estimated at 1.714 billion units, implying a CAGR of approximately 62%. Breaking this down further, EML chip demand is expected to reach 718 million units with a CAGR of about 34%, while CW laser chip demand is estimated at 987 million units, representing a staggering CAGR of 114%. Despite this robust demand, supply constraints are anticipated in laser chips, packaging yields, and upstream production capacity. To mitigate these risks, pure-play module manufacturers are actively securing upstream supply through long-term agreements, highlighting the fragility of the current supply chain.

Citigroup's equity research team has implemented specific stock adjustments reflecting these granular market dynamics. Dongshan Precision saw its target price raised from 225 yuan to 350 yuan, with the firm identifying its AI optical business as the primary growth driver. NewEasyGain received a substantial target price increase from 353.57 yuan to 701 yuan, driven by its positioning in 3.2T transceivers and NPO technologies. Transtech Communication also benefited, with its target price raised from 318.57 yuan to 419 yuan, focusing on CPO volume and 3.2T optical engines. Conversely, Taichen Optoelectronics was downgraded from Buy to Sell, with its target price reduced from 156 yuan to 152 yuan due to decoupling risks from Corning, intensifying competition, and high valuation concerns.

The path forward is not without significant headwinds that could disrupt these projections. Constraints identified include persistent supply bottlenecks for EML and CW chips, alongside technological implementation risks associated with scaling CPO and NPO architectures.

Furthermore, valuation pressures remain a critical variable as the market prices in these aggressive growth expectations. This marks a pivotal moment where supply chain resilience and technological execution will determine which entities capture the majority of the $920 billion opportunity.