CPO (co-packaged optics) stocks rallying; optical networking shipments forecast to surge 2.5x in 2027 on AI cluster demand.
SemiAnalysis triggered a sharp selloff in optical networking stocks with a bearish outlook on co-packaged optics (CPO) in June, only to launch a related ETF shortly thereafter, sparking market skepticism over a "bad news first, buy the dip later" strategy. Now, with the mass production roadmaps of NVIDIA and TSMC coming to light, the long-term value of CPO is being vindicated. Analysts suggest investors could revisit 13 potentially oversold Taiwan-based supply chain stocks before their share prices fully recover.
NVIDIA's CPO switches utilizing TSMC's COUPE (Compact Universal Photonic Engine) technology have already completed validation of pluggable optical transceiver modules with transmission rates of 1.6Tbps in 2025. Formal volume production ramp-up is expected in the second half of 2026, with further integration into TSMC's CoWoS advanced packaging to co-package the optical engine with the ASIC chip. This could boost transmission bandwidth significantly to 6.4Tbps, spearheading the upgrade of scale-out network architectures.
Morgan Stanley's Greater China Semiconductor Head Charlie Chan dispelled earlier market chatter about "excessive Blackwell chip inventory," emphasizing it merely represents a "normal supply chain buffer" that will be fully consumed before the end of 2026. The firm estimates Blackwell shipments will reach 5.4 million units in 2026, while NVIDIA's next-generation Rubin and Rubin Ultra chip shipments in 2027 have been revised upward to nearly 7 million units—a 2.5x surge compared to 2 million units projected for 2026.
Taiwan's supply chain stands to capture substantial value from CPO commercialization. Wafer foundry services are led by TSMC, packaging and testing by ASE Technology Holding, and transmission interfaces by MediaTek, ShunSin Technology, and Elite Advanced Laser. The laser packaging and testing segment encompasses Winstek Semiconductor, Sigurd Microelectronics, and LandMark Optoelectronics; laser chip suppliers include Visual Photonics Epitaxy and WIN Semiconductors; packaging materials feature Everlight Chemical and Eternal Materials; while FOCI is the primary beneficiary among fiber array unit suppliers.
TSMC's own capacity expansion is staggering. Its photonic integrated circuit (PIC) capacity is set to expand over 30-fold within three years, growing from 500 wafers monthly to 10,000 wafers in the second quarter of 2026, 15,000 in the fourth quarter, and exceeding 25,000 by 2028. Annualized PIC output will skyrocket from 4 million units to nearly 194 million units.
Leading customers NVIDIA, Broadcom, and AMD will be the first to adopt TSMC's COUPE platform between 2026 and 2027. AMD has secured 240,000 wafers of CoWoS advanced packaging capacity, with shipments of its flagship MI455 and MI450 AI chips estimated at 1 million and 500,000 units respectively. AMD's next-generation Venice processor—the company's first CPU to incorporate CoWoS advanced packaging—is projected to reach 5.7 to 6 million shipments in 2027, up from 1 million units in 2026. ASE Technology Holding, Powertech Technology, and Amkor are viewed as the super winners of the 2027 AI arms race, as they will concentrate the chip-on-wafer process for Venice chips.
Xintec, a packaging and testing company in which TSMC holds over 30%, has transformed into a critical "optical turnkey hub." Since alignment precision between chips and optical fibers must achieve sub-micron levels, Xintec's expertise in 3D wafer-level packaging is essential for optoelectronic integrated packaging. The company's share price recently hit consecutive daily limit-up moves to reach record highs, with May consolidated revenue of NT$697 million ($21.7 million), up 43.32% year-over-year, and cumulative first-five-months revenue of NT$3.33 billion ($103.7 million), up 27.86% year-over-year.
MA-tek, a semiconductor testing and analysis leader, recorded June revenue of NT$558 million ($17.3 million), marking a record high for the fourth consecutive month. The Spectrum-X CPO switch jointly developed by NVIDIA and TSMC has begun shipping to select partners, offering up to 5x power efficiency improvements. The complexity of its heterogeneous packaging interfaces has driven outsourcing demand for optoelectronic interface material analysis and high-speed signal troubleshooting. MA-tek's penetration rate in silicon photonics supply chain testing and analysis has exceeded 50%, and it has installed its first dedicated failure localization platform for high-end optoelectronic products.
Although CPO mass production still faces yield challenges—TSMC's SoIC yield of 50% would reduce monthly output of 10,000 wafers to only about 390,000 units after cumulative losses—TSMC possesses strong pricing power in advanced process nodes. Unit prices for 2-nanometer wafers are expected to approach $30,000, offsetting cost pressures through price increases. As AI servers evolve toward higher bandwidth and lower power consumption, co-packaged optics will become critical for next-generation high-speed interconnects, positioning the related supply chain for substantial growth opportunities.