Clarifying the Logic Behind the Frenzy: Why Optical Module Stocks Soared

In 2021, five of the world’s top ten optical module manufacturers were Chinese enterprises. Aside from Huawei and Hisense, the other three—Zhongji Xunshuang (Accelink), Accelink Technologies, and Xinyi Optics—are A-share listed companies specializing in optical modules; their stock prices surged by 216.0%, 232.6%, and 82.25%, respectively, in 2023. How should we interpret this? To cut to the chase, the author sees two main drivers: (1) sustained, better-than-expected demand driven by AI computing power, and (2) valuation recovery. The former expands the industry’s growth ceiling via emerging technologies; the latter restores valuations through tangible, realized earnings—after all, these firms had already entered the global Top 10 back in 2021. From a purely price perspective, Zhongji Xunshuang and Xinyi Optics both soared from the low twenties to over eighty—surely that qualifies as speculation? Not necessarily. As noted earlier, focusing solely on share-price appreciation can be misleading; analyzing changes in P/E ratios yields clearer insights. As of the market close on April 25, their forward P/E ratios stood at 64x and 34x, respectively, while Accelink’s was 33x. In AI large-model architectures—taking NVIDIA’s H100 GPU as a reference—each GPU typically connects to roughly five optical modules. Thus, optical module demand exhibits a near-linear correlation with GPU deployment volume—a foundational logic underpinning the recent surge in optical module stocks alongside the AIGC boom. NVIDIA’s U.S.-listed shares trade at a P/E of 152x; Jingjia Micro, a domestic GPU-focused company, trades at an even higher 201x. Of course, other factors contribute—including scarcity value of GPU-related stocks in China’s secondary markets, and broader market expectations tied to computing power—but such comparisons reveal that, unlike certain speculative firms with deteriorating fundamentals and muddled business models, the optical module sector combines solid earnings visibility with strong growth prospects—and its current valuations are not excessively high. A critical precondition for this massive rally was, in fact, years of prior decline. Take Zhongji Xunshuang as an example: its PE/PB Bands chart (where five colored lines represent five tiers of trailing-twelve-month P/E ratios) shows that between 2018 and 2020, its share price consistently traded above the red line (40x P/E), even briefly exceeding 63x—indicating extremely optimistic market expectations and strong confidence in its growth potential. Indeed, throughout 2020, Zhongji Xunshuang delivered measurable earnings growth (reflected in rising P/E multiples). Yet starting in 2021, earnings growth slowed—and even turned negative—while its share price plunged continuously for two full years, dragging its P/E ratio down from 50x to a low of just 17x. Crucially, during this period Zhongji Xunshuang’s financials remained sound—no sudden deterioration, no accounting scandals—but investor sentiment shifted steadily downward, evolving from optimism to neutrality, then outright pessimism. Recall: in 2021, Zhongji Xunshuang had already ranked first among the world’s top ten optical module vendors. When capital markets experience a sharp inflection point in expectations, stock prices often swing violently—hence the magnitude of the decline. From roughly ¥50 at the start of 2021, the share price fell to ¥27 by February 2022. Previously, the cloud-computing era had entered its latter half; investors anticipated slowing growth across the entire optical module sector and accordingly revised valuations downward—causing Zhongji Xunshuang and the broader sector to slump.

Expected Price Cuts of up to 100%! Amid the AI Boom, Leading Optical Chipmakers Are Mired in Losses

Among active optical chips, products are mainly 2.5G and 10G laser diode chips. As for 25G chips, as of mid-2023, they remained in customer sampling and validation phases. Higher-speed 50G chips are still under development. Currently, for optical chips operating at 2.5G and below, China has achieved near-complete localization—the domestic market share of Chinese optical chip makers exceeds 90%. In the 10G segment, domestic firms have also largely mastered core technologies, commanding approximately 60% market share. Without a technological moat, the market inevitably devolves into cutthroat competition—and Shijia Photonics is squarely caught in this vortex. Since 2023, its gross margin has further eroded to below 20%, deepening its losses. II. Yuanjie Technology: Forced into Price Wars By contrast, Yuanjie Technology enjoys relatively advanced technology—especially in 25G and higher-speed optical chips. Few domestic manufacturers can supply 25G+ high-speed laser diode chips meeting performance and reliability standards; thus, Yuanjie maintained gross margins above 60% from 2020 to 2022. Yet recently, intensifying competition in the optical chip market has compelled Yuanjie to lower prices on select product lines—gradually drawing it into the price war. In the first three quarters of 2023, Yuanjie’s gross margin plummeted from above 60% to just 39.05%. On the supply side, the price war has already erupted; yet on the demand side, the market is growing increasingly sluggish. The two largest downstream markets for optical chips are telecommunications and data centers. In 2020, spurred by national 5G policy, demand for 10G and 25G laser diode chips surged dramatically—propelling Yuanjie’s revenue from ¥81.31 million to over ¥200 million, a 187% year-on-year increase. But Yuanjie’s moment of glory lasted only one year. After barely flatlining in 2021 (−0.54% YoY) and posting modest growth in 2022 (+21.89% YoY), its revenue in the first three quarters of 2023 plunged 51.83% YoY—driven primarily by weak demand in the fiber-to-the-home (FTTH) market. Halving revenue often triggers a compounding problem: rising expense ratios. In 2022, Yuanjie’s management expense ratio and R&D expense ratio stood at 10.98% and 9.58%, respectively. By the first three quarters of 2023, those figures had ballooned to 20.91% and 24.28%—a combined total exceeding 40%. Recall: Yuanjie’s gross margin had already fallen below 40% in 2023. With profitability evaporating and expense ratios doubling, Yuanjie had effectively exhausted its profit cushion. In Q2 and Q3 of 2023, Yuanjie’s non-GAAP net income attributable to shareholders was −¥0.4454 million and −¥0.4737 million, respectively—two consecutive quarterly losses quietly marking the onset of sustained unprofitability. Yet Yuanjie’s actual operational losses likely run far deeper than the mere hundreds of thousands disclosed in its financial statements. On December 21, 2022, Yuanjie completed its IPO, raising ¥1.51 billion in net proceeds. Backed by this capital, Yuanjie earned ¥15.355 million in pure interest income during the first three quarters of 2023.

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