A Soft Landing for AI Optics?

　　Lightcounting releases “Cloud Datacenter Optics Report – July 2024”

　　The race for AI supremacy is in full swing. We have been increasing our forecast for sales of Ethernet optical transceivers every 3 months since July 2023 and we are doing it again in this report.

　　The Figure below presents our latest forecast for sales of Ethernet optical transceivers used in AI Clusters. This new market segment is more than doubling in 2024. The strong growth is likely to continue in 2025-2026, but this will not last indefinitely.

　　Our forecast projects for a “soft landing” in 2027, but it is possible that the market will decline at some point. Timing of such declines is hard to predict, but we usually see it every 3 years on average.

　　Very strong demand is already creating bottlenecks across the supply chain, and it may get worse. Customers are probably starting to order extra in anticipation of continuing shortages, aggravating the problem. Once the shortages ease, the demand may drop, creating excess inventories across the supply chain. This is exactly what happened in the end of 2022 and 2019. Will this time be different? Probably not.

　　The figure also shows the contribution of Nvidia to the optical transceiver market. Many of Nvidia’s customers, including Microsoft, purchase fully equipped systems, including all the transceivers. This may not be the most economical approach, but it is an arms race. We expect more companies to start bypassing Nvidia for purchases of optical transceivers in the future, reducing Nvidia’s contribution to the market.

　　Google and Nvidia were the first large customers to increase their purchases of transceivers sharply in May-June of 2023. By now all the leading cloud companies have joined the race. Current demand for 4x100G and 8x100G transceivers exceeds supply by more than 100%. Many of the customers will have to wait for deliveries until 2025. We increased our forecast for 4x100G transceivers by $0.5 billion in 2025 and by $1 billion in 2026. Sales of these products are projected to peak above $4 billion in 2026. Our forecast for 8x100G transceivers was increased by $2 billion in 2025 and sales of these modules are expected to exceed $7 billion in 2026.

　　The first 4x200G and 8x200G transceivers will be shipped in late 2024 and we have sharply increased our forecast for these modules in 2025. We have also added 3.2T transceivers to our model. Combined sales of 1.6T and 3.2 transceivers, LPO and CPO will add up to almost $10 billion in 2029, accounting for the bulk of sales of Optics for AI Clusters.

　　The report is available to subscribers at: https://www.lightcounting.com/login.

　　SOURCE Lightcounting