Eliza Wong
AI Infrastructure Gold Rush Extends to Optical Circuit Switch Technology
The artificial intelligence infrastructure boom continues expanding across China’s technology sector, with optical circuit switch (OCS) concepts emerging as the latest beneficiary of massive data center investments. Today’s trading session witnessed explosive gains across the OCS sector, with Dekelife (德科立) hitting the 20% daily limit up, Guangku Technology (光库科技) surging over 17%, and Lingyun Guang (凌云光) advancing more than 16%. Tengjing Technology (腾景科技), Saige Electronics (赛微电子), and Juguang Technology (炬光科技) all posted significant gains as institutional investors reposition portfolios toward next-generation data center connectivity solutions.
The catalyst behind today’s movement emerged from the 26th China International Optoelectronic Exposition (CIOE) in Shenzhen, where OCS technology featured prominently as a next-generation switching technology. Multiple manufacturers, including Guangku Technology and Lingyun Guang, showcased their OCS solutions and products, highlighting the technology’s potential to transform data center efficiency and performance.
Market Momentum Builds on AI Infrastructure Demand
The optical circuit switch sector represents the latest extension of the AI infrastructure investment theme that began with PCB and CPO technologies. As AI computing demands escalate, traditional data center architectures face unprecedented pressure to deliver higher bandwidth with lower latency and power consumption. This creates ideal conditions for optical circuit switch adoption, particularly in advanced computing environments where performance constraints directly impact AI training and inference capabilities.
According to trading data from the Shanghai and Shenzhen exchanges, OCS-related stocks have attracted significant institutional volume, suggesting sophisticated investors are establishing strategic positions in anticipation of broader technology adoption. The sector’s momentum reflects growing recognition that optical circuit switch technology addresses critical bottlenecks in AI data center operations.
Understanding Optical Circuit Switch Technology Fundamentals
Optical circuit switch (OCS) technology represents a fundamental departure from traditional electronic switching approaches. Unlike conventional switches that require conversion between optical and electrical signals, OCS technology reconfigures the physical path of light signals directly, eliminating the time-consuming and energy-intensive光电转换 (optical-electrical conversion) process. This fundamental difference enables optical circuit switch systems to deliver substantially higher bandwidth capacity while simultaneously reducing latency and power consumption.
The technology’s potential significance was highlighted in a September 6th report from the Science and Technology Innovation Board Daily (《科创板日报》), which examined whether optical circuit switch technology could provide solutions for AIDC high-speed interconnection demands. The report emerged shortly after NVIDIA launched its Spectrum-XGS Ethernet platform, designed to connect global data centers into a ‘super GPU’ network. However, this expanded networking capability creates potential latency issues that optical circuit switch technology specifically addresses.
Real-World Validation from Technology Leaders
Optical circuit switch technology isn’t merely theoretical. Google has already implemented extensive OCS technology within its Jupiter data center network since 2023. According to analysis from SemiAnalysis, Google’s customized OCS network delivered impressive performance improvements: 30% increase in network throughput, 40% reduction in power consumption, 10% faster data stream completion, 50x reduction in network downtime, and 30% decrease in capital expenditures.
These results demonstrate that optical circuit switch technology delivers tangible benefits in large-scale implementations. For investors evaluating Chinese OCS companies, Google’s implementation provides crucial validation of the technology’s commercial viability and performance characteristics.
Technical Approaches and Competitive Landscape
The optical circuit switch market currently features multiple technological approaches, with no single solution yet dominating the landscape. This diversity creates both opportunities and challenges for investors trying to identify potential winners in the emerging OCS space.
MEMS-Based Optical Circuit Switch Solutions
The micro-electromechanical systems (MEMS) approach represents the most mature optical circuit switch technology currently available. This method involves etching arrays of microscopic mirrors onto silicon wafers, enabling precise control over input beam direction and routing to specified output ports. At the recent optoelectronics exposition, Guangku Technology showcased its MEMS-based optical circuit switch complete machine products developed in collaboration with Calient.
MEMS technology benefits from relatively established manufacturing processes and proven reliability in other applications. However, scaling MEMS-based optical circuit switch systems for data center applications presents unique challenges related to precision manufacturing and long-term reliability under continuous operation.
Digital Liquid Crystal (DLC) Technology
The digital liquid crystal approach to optical circuit switch technology utilizes the deflection characteristics of liquid crystal molecules under external electric fields to achieve precise control over beam propagation direction. Representative manufacturer Coherent has reported initial revenue from its new OCS products in the second quarter of this year, with downstream customer demand gradually increasing. The company anticipates continued optical circuit switch revenue growth from the second half of 2024 through 2026.
DLC technology offers potential advantages in precision control and scalability, though it faces challenges related to response times and environmental stability in data center conditions.
Direct Beam Steering (DBS) Technology
The direct beam steering approach represents Polatis’s patented exclusive technology, enabling precise light rotation and positioning within optical circuit switch systems without additional signal processing. Polatis has collaborated with Lingyun Guang since 2015, combining proprietary technology with manufacturing expertise to develop commercial OCS solutions.
DBS technology offers potential advantages in simplicity and reliability, though its proprietary nature may limit widespread adoption compared to more open technology standards.
Market Challenges and Investment Considerations
Despite promising technology and demonstrated benefits, optical circuit switch adoption faces significant hurdles that investors must carefully evaluate. Minsheng Securities (民生证券) analysts note that OCS technology applications in smart computing centers and similar scenarios remain in early stages, with large-scale commercial deployment facing multiple challenges.
Cost and Implementation Barriers
Optical circuit switch systems currently carry substantial cost premiums compared to traditional switching solutions. Additionally, deploying OCS technology may require upgrades or redesigns of existing optical modules and peripheral components, creating significant initial investment requirements. These cost factors particularly impact adoption decisions in existing data center infrastructure where retrofitting costs must be justified by performance improvements.
Standardization represents another critical challenge for optical circuit switch technology. The absence of established industry standards could delay compatibility between different manufacturers’ equipment and slow large-scale deployment. Investors should monitor standards development through organizations like the Optical Internetworking Forum (OIF) and Institute of Electrical and Electronics Engineers (IEEE) for signals about market maturation.
Competitive Technology Landscape
Beyond internal technology variations, optical circuit switch systems face competition from continuing improvements in electronic switches and emerging photoelectric hybrid solutions. Each alternative approach offers different trade-offs in performance, cost, and implementation complexity that could influence adoption rates for pure optical circuit switch technology.
As the OCS industry gains momentum, new industry giants or cross-sector players may enter the market, leveraging substantial financial resources, technical capabilities, or customer relationships to rapidly alter competitive dynamics. This potential for disruption creates both risks and opportunities for early-stage investors in current OCS specialists.
Investment Outlook and Strategic Implications
The optical circuit switch sector represents a classic emerging technology investment scenario: substantial potential rewards tempered by significant technology and adoption risks. For investors positioned in Chinese equity markets, several factors suggest continued attention to OCS developments.
Market Timing and Adoption Curves
Current optical circuit switch technology appears positioned approximately 2-3 years from mainstream adoption in large-scale data center applications. This timeline provides opportunities for strategic positioning while allowing time for technology selection and standardization processes to mature. Early revenue generation from companies like Coherent suggests the technology is transitioning from pure development to initial commercial deployment.
Investors should monitor several key indicators for optical circuit switch adoption: major cloud provider implementation announcements, standardization progress, and cost reduction milestones. Each of these factors could significantly accelerate or delay widespread OCS deployment.
Portfolio Positioning Strategies
For institutional investors considering optical circuit switch exposure, several approaches merit consideration. Direct investment in pure-play OCS companies offers maximum leverage to technology adoption but carries higher volatility and company-specific risks. Alternatively, positions in diversified technology companies with OCS exposure provide some technology upside while mitigating pure-play risks.
The third approach involves investing in complementary technologies that benefit from optical circuit switch adoption regardless of which specific technology prevails. Companies producing advanced optical components, testing equipment, or integration services could benefit from overall market growth without exposure to specific technology selection risks.
Forward-Looking Assessment for Sophisticated Investors
The optical circuit switch market represents a compelling investment thesis within the broader AI infrastructure theme. While technology and adoption risks remain substantial, the potential addressable market justifies serious attention from sophisticated investors. Current market valuations appear to reflect optimism about long-term potential while perhaps underestimating near-term challenges.
Successful investment outcomes will likely require careful company selection, ongoing technology assessment, and patience through inevitable adoption delays. The companies best positioned to capitalize on optical circuit switch adoption will combine technological expertise with strong customer relationships and scalable manufacturing capabilities.
For global investors focused on Chinese equity markets, the OCS sector offers exposure to cutting-edge technology development while participating in China’s broader AI infrastructure expansion. As with any emerging technology, a balanced approach combining conviction with appropriate position sizing seems prudent given the combination of substantial upside potential and meaningful implementation risks.
Monitor upcoming quarterly earnings from OCS-related companies for commercial deployment updates, attend industry conferences like future optoelectronics expositions for technology progress assessments, and maintain dialogue with company management teams regarding customer engagement and product roadmap execution. The optical circuit switch revolution is underway—strategic positioning now could yield substantial rewards for informed investors who accurately assess the technology’s adoption trajectory.
