"Speed" drops sharply; why is Tianfu Communication leading the decline in the optical module sector?

Tianfu Communication drops 10% sharply, while Zhongji Xuchuang and Xinyi Sheng remain relatively steady.

After NVIDIA showcased its new generation AI chip architecture at GTC, leading to a significant divergence in the A-share optical module sector. On March 17, Tianfu Communication (300394.SZ) opened sharply lower, falling nearly 11 intraday, and closed down over 10%, hitting a new low since February 10. Its market value evaporated by about 24 billion yuan in a single day, falling 28% from the intraday high of 388.94 yuan on March 2. In stark contrast, Zhongji Xuchuang (300308.SZ) and Xinyi Sheng (300502.SZ), also in the optical module sector, performed relatively well in the morning, but declined with the market in the afternoon.

Market consensus suggests that Tianfu Communication’s sharp decline was due to the GTC positive news combined with short-term profit-taking. More fundamentally, concerns arose over NVIDIA’s disclosed CPO (co-packaged optics) technology route, which sparked worries about Tianfu Communication’s long-term growth prospects: as technology advances into the CPO era, the value of the company’s core products and its bargaining power in the industry may diminish.

As of press time, several attempts by First Financial to contact Tianfu Communication’s secretariat went unanswered.

GTC Conference: No Surprise, Tianfu Communication Falls Over 10%

During a two-and-a-half-hour speech, Jensen Huang announced multiple new products, including the Vera Rubin platform, Rubin Ultra architecture, and Vera CPU rack, and provided a latest forecast that data center revenue will reach $1 trillion by 2028. For the capital market, the recent speculative expectations on optical modules and optical chips have all been realized.

However, within the same sector, market interpretations of the same news diverged sharply. On March 17, Tianfu Communication opened with heavy selling, with the stock price dropping more than 9%, and in the afternoon, the decline approached 11%. It closed down 10.02%, leading the optical module sector.

Zhongji Xuchuang, Xinyi Sheng, and Tianfu Communication are known as the “Three Swordsmen” of optical modules. Yet, the GTC event did not cause additional volatility in the stock prices of the first two. They opened higher, with early declines limited to 1-2%, and weakened with the market in the afternoon. Zhongji Xuchuang closed down 3.33%, and Xinyi Sheng fell 5.78%.

Why did Tianfu Communication alone face heavy selling? Industry analysts and private equity professionals interviewed by First Financial believe that, on one hand, NVIDIA’s GTC did not deliver any unexpected CPO narrative, prompting some short-term funds to exit. On the other hand, new technology may introduce uncertainties regarding Tianfu Communication’s market share and future performance.

Short-term emotional fluctuations, long-term order and performance outlook

Both 800G and 1.6T optical modules represent huge market demand for Tianfu Communication, as confirmed in the company’s annual performance forecast.

But the issue lies in the long term. Jensen Huang showcased the world’s first mass-produced CPO switch, Spectrum-X, and explicitly stated, “We need all partners to continue expanding production in copper cables, fiber optics, and CPO.”

CPO technology involves co-packaging optical and electrical chips to shorten connection distances and increase integration. This means that the precise optical components provided by Tianfu Communication, originally inside pluggable modules, could eventually be integrated into GPU substrates or packages. If the technical route shifts, the value of Tianfu Communication’s existing core products could be compressed or even replaced.

Although Tianfu Communication has both CPO and NPO market share and technological reserves, NVIDIA’s latest Feynman next-generation AI chip architecture, incorporating optical communication technology and expected to launch in 2028, raises concerns about whether Tianfu can maintain its industry position beyond 2027 in the CPO era.

In fact, the development of CPO technology and its impact on the manufacturing industry chain have been widely discussed in sell-side research reports and investor communications.

A private equity fund manager told First Financial that the market previously speculated on Tianfu Communication mainly based on CPO development logic, but NVIDIA’s recent presentation did not bring any unexpected CPO narrative. “CPO is essentially a packaging innovation. Most optical module manufacturers can produce NPO, but only those with integrated optical engine design and system integration capabilities can become close partners of NVIDIA and share industry growth dividends,” he said. “NVIDIA’s push for CPO is also driven by a desire for greater industry influence. The market’s concern about Tianfu Communication is fundamentally about its bargaining power during technological transitions.”

Some market analysts believe that Tianfu Communication’s sharp decline on March 17 was more driven by market sentiment and valuation adjustments, as the company still has confirmed growth in 1.6T products. The plunge reflects long-term uncertainties rather than immediate performance issues. However, others argue that the market may have overreacted to the long-term impact of CPO. Ultimately, the stock price will be determined by order fulfillment and actual performance.