Price Target Doubles to 2,581 Yuan! Goldman Sachs: NVIDIA Accelerates Demand for 3.2T Optical Modules, Zhongji Innolight Sees Valuation Reshaping

The investment boom in AI infrastructure continues to heat up. As computing systems evolve toward higher-speed interconnects, the optical module industry is entering a new window for technological upgrades.

On July 17, Goldman Sachs released its latest research report, raising the 12-Month Price Target for Zhongji Innolight significantly from 1,187 yuan to 2,581 yuan, while maintaining a "Buy" rating. Meanwhile, Goldman Sachs raised its net profit forecasts for the company for 2026–2028 by 65%, 108%, and 119%, respectively.

Goldman Sachs believes that the continuous upgrades of NVIDIA's new generation of AI servers are driving data center networks to rapidly transition from 800G to 1.6T, laying the groundwork for 3.2T deployment, and the global high-speed optical module market is entering a new expansion cycle.

With its leading advantages in silicon photonics technology, its status as the world's largest supplier of optical interconnect solutions, and continuously expanding production capacity, Zhongji Innolight is expected to be a core beneficiary of this round of AI network infrastructure upgrades, further consolidating its global leadership.

Goldman Sachs Raises Earnings Forecasts; AI Demand Drives Volume Growth and Margin Improvement

The most significant change in this report comes from the earnings forecasts.

Goldman Sachs raised its revenue forecasts for Zhongji Innolight for 2026–2028 by 57%, 100%, and 118%, respectively, corresponding to revenues of 123.6 billion yuan, 249.6 billion yuan, and 334.0 billion yuan. Net profit forecasts for the same period were raised by 65%, 108%, and 119%, respectively.

Goldman Sachs attributes this adjustment in earnings forecasts primarily to three factors:

First, AI infrastructure investment continues to exceed expectations, driving rapid growth in demand for high-speed optical modules;

Second, the company's capacity expansion is significantly faster than previously predicted, with overall capacity expected to more than double by 2026;

Third, beyond traditional pluggable optical modules, the company is entering new Scale-up markets such as optical engines, NPO/CPO, and OCS optical switches, opening up new growth spaces.

Meanwhile, as the proportion of silicon photonics products continues to rise and scale effects are realized, the company's gross margin is expected to increase further from 42% in 2025 to 50% in 2028, with the net profit margin also rising to 33%.

AI Server Upgrades Drive Rapid Evolution from 800G to 3.2T

Goldman Sachs judges that the global optical module market is entering a new cycle of technological upgrades.

The report estimates that the global optical module market size will grow from $34.2 billion in 2025 to $50.9 billion in 2026 and $72.6 billion in 2027, remaining at a high level of approximately $69.1 billion in 2028. Among these, the true growth driver comes from high-speed products above 800G.

Goldman Sachs forecasts:

• Shipments of 800G optical modules will reach approximately 34.18 million units in 2026, increasing to 44.99 million units in 2027;

• Shipments of 1.6T optical modules will reach 25.50 million units in 2026, rapidly jumping to 45.72 million units in 2027, becoming the market mainstream;

• 3.2T optical modules will officially enter the volume production phase in 2027, with shipments reaching 13.07 million units, further growing to 28.16 million units in 2028.

The core force driving this upgrade comes from NVIDIA's AI server roadmap.

Goldman Sachs expects the number of global AI server racks to grow from approximately 55,000 in 2026 to 105,000 in 2027, reaching 163,000 in 2028. As the GB200 adopts a 400G+800G network architecture, the GB300 upgrades to 800G+1.6T, and the next-generation Rubin and Rubin Ultra further move toward 1.6T and 3.2T, demand for high-speed optical modules will continue to rise.

Sharp Rise in Silicon Photonics Penetration; Leader's First-Mover Advantage Builds High Moat

Compared to the previous product upgrade cycle, Goldman Sachs believes that the greater change in this industrial transformation comes from the technological route.

The report estimates that by 2026, silicon photonics (SiPh) penetration rates in 800G, 1.6T, and 3.2T products will reach 60%, 80%, and 100%, respectively. Across the entire optical module industry, the revenue share of SiPh products will also increase from 28% in 2025 to 62% in 2028.

Goldman Sachs points out that silicon photonics not only offers better power consumption and performance advantages but also reduces packaging complexity, improves supply chain flexibility, and effectively lowers costs, thus rapidly replacing traditional EML solutions in high-speed products. Zhongji Innolight is one of the earliest manufacturers globally to achieve large-scale commercialization of high-speed silicon photonics modules.

The company has currently laid out next-generation technologies such as coherent optical communication, LPO, LRO, XPO, and CPO/NPO, and has established a complete New Product Introduction (NPI) system, capable of continuously shortening the cycle from R&D to mass production.

Goldman Sachs believes that as the supply of core components tightens and industry technical barriers continue to rise, new entrants will find it increasingly difficult to replicate this advantage, and the market share of leading manufacturers is expected to increase further.

Leap in Earnings Quality; Free Cash Flow and Cash Reserves Continue to Grow

According to statistics from LightCounting and CIC, Zhongji Innolight became the world's largest supplier of optical interconnect solutions in 2025, with a market share of 21.2%, maintaining leadership in multiple high-speed product areas such as 400G, 800G, and 1.6T.

Goldman Sachs expects that in the coming years, the company will not only see rapid revenue growth but also continuous improvement in earnings quality. The report forecasts that the company's ROE will increase further from 44% in 2025 to 52%–61% in 2026–2028; Return on Capital Employed (CROCI) could rise as high as 137.5%.

Although capital expenditure in 2026 is expected to increase by 155% year-over-year to 7.03 billion yuan to support new capacity construction, free cash flow will remain strong, projected to reach 8.5 billion yuan, 62.3 billion yuan, and 111.5 billion yuan in 2026, 2027, and 2028, respectively.

Meanwhile, the company will continue to maintain a net cash position, with cash and cash equivalents expected to grow from approximately 11.0 billion yuan in 2025 to 195.1 billion yuan in 2028. The cash conversion cycle is also expected to shorten from 122 days to 98 days.