Silicon Photonics: State of the Market

Not investment advice. This video summarizes public sources and MESH's CORTEX notes as of October 2026. Company figures are the companies' own claims.

Transcript

0:00 · Intro

Here's a plain-English look at the silicon photonics market, as of October 2026. We'll cover why AI made it urgent, what the industry leaders are shipping, and where startups are placing their bets.

0:12 · Basics

Silicon photonics builds optical components on silicon wafers, in the same kind of fabs that make chips. A modulator turns electrical bits into pulses of light, a waveguide carries them, and a detector turns them back into bits. Silicon is poor at making light, so the laser is usually a separate indium phosphide chip, bonded on or fed in from outside.

0:34 · Why now

Why now? A Yole analyst put it simply: the bottleneck is shifting from compute to communication. Copper is running out of reach. At NVLink 6 speeds, 3.6 terabytes per second per GPU, TrendForce says copper is limited to less than a meter. Beyond that, links have to be optical, and big clusters need a lot of them: up to six transceivers per GPU in scale-out networks, LightCounting expects. The industry's answer is to move the optics closer to the chip.

1:00 · Architecture

Most links today use pluggable transceivers: modules in the front of the switch, each with a power-hungry signal processor inside. Linear pluggable optics remove that processor. Co-packaged optics, or CPO, moves the optical engine onto the switch package itself. The next rung is optical I/O, with light coming straight off a GPU or accelerator package. Pluggables ship in volume. CPO switches are in early, limited shipments. Optical links on accelerators are expected from 2027, with broad deployment closer to 2029. The prize is power. In one modeled estimate, a 1.6 terabit pluggable uses about 13.8 picojoules per bit, a linear pluggable 7.9, and co-packaged optics 6.4. At a million ports, the gap between 13.8 and 6.4 is several megawatts of continuous power. Vendors claim more. Nvidia says CPO cuts a 1.6 terabit port from about 30 watts to 9, and Meta measured 65 percent lower power per lane on Broadcom's CPO switch. And the market is booming.

2:05 · Market

LightCounting estimates optics for AI clusters reached 16.5 billion dollars in 2025. In January it forecast 26 billion for 2026, and it has raised its outlook since. It sees a reasonable chance of 100 billion dollars a year by 2030, though it says many stars have to align. Silicon photonics is gaining share: LightCounting expects it in more than half of all transceiver sales this year. CPO itself is still tiny. TrendForce puts it at about half a percent of AI data center optics in 2026. Long-range forecasts vary widely: about 10 billion dollars of CPO engines in 2030 from LightCounting, over 39 billion including near-packaged optics from TrendForce, and over 100 billion by 2031 from Yole, mostly for scale-up. Analysts agree on the direction. They don't agree on the size. Among the industry leaders, Nvidia sets the pace.

2:56 · Leaders

Its Spectrum-X Photonics switches put the optics in the package, and TrendForce reported them shipping to select partners in July 2026. Nvidia is also securing supply. In March it invested 2 billion dollars each in laser makers Coherent and Lumentum, and 2 billion in Marvell as part of a wider partnership. Jensen Huang told partners at GTC that Nvidia needs a lot more capacity for copper, for optics, and for CPO. Broadcom is on its third generation of CPO, the 102.4 terabit Davisson switch, and its earlier Bailly switch is shipping in limited volume. Meta ran its first million device hours on Bailly with zero link flaps. TSMC builds optical engines on its COUPE platform, with Nvidia, Broadcom and AMD expected to be its first volume customers. Marvell bought Celestial AI. AMD says its 2027 MI500 GPUs will support both copper and optical links. And Cisco's G300 switch launched in February with pluggable and linear optics. Underneath sits a supply chain under strain.

3:59 · Supply chain

Lasers are a key bottleneck. In April, LightCounting put demand 30 percent above supply, limited by laser chips, with shortages easing by year end. In August, Lumentum's CEO said: we are way behind on high-powered lasers. Foundries are adding capacity fast. Tower's silicon photonics run rate grew from 180 million to 680 million dollars in a year, with 1.3 billion dollars of 2027 contracts signed. Testing is slow: a complete test of one photonic chip can still take more than 100 seconds. And CPO competes with AI chips for the same advanced packaging capacity. So when does CPO reach volume? CPO switches are in early, limited shipments. Coherent expects its first CPO revenue in the December quarter. TrendForce expects the CPO switch market to hit its volume ramp in 2027 and 2028, and Lumentum's high-volume lasers for scale-up start in the second half of 2027. Nvidia's Feynman generation, due in mid-to-late 2028, is expected to offer copper or co-packaged optical NVLink. And dates move: Nvidia's Kyber rack has reportedly slipped to 2028. Now the startups.

5:10 · Startups

The biggest 2026 rounds went to optical I/O and CPO engines. Lumilens came out of stealth with more than 900 million dollars raised, at a 5.5 billion dollar valuation. Ayar Labs raised 650 million dollars this year and was reported valued at more than 5 billion. Lightmatter was valued at 4.4 billion in its last round, in 2024. Smaller bets cover lasers, optical switching and optical computing. iPronics and Salience each raised 125 million dollars for optical switches. Exits have arrived too. Marvell bought Celestial AI for 3.25 billion dollars upfront, rising to about 5.5 billion if revenue targets are met. Credo bought DustPhotonics for 750 million dollars in cash, plus shares and an earnout, and Ciena bought Nubis for 270 million. AMD, Molex and GlobalFoundries bought photonics companies too. And optical computing firm Lightelligence rose 384 percent on its Hong Kong debut. There is a serious counter-case.

6:09 · Outlook

In late 2025, Arista's Andy Bechtolsheim said 99.9 percent of optics shipped were still pluggables. And pluggables keep improving: Nvidia and Cisco just unveiled a 400 gigabit per lane design. Copper still has legs, he added, and TrendForce says many cloud providers prefer near-packaged optics as the next step. CPO still has to prove yield, serviceability and connector standards at scale. And four cloud companies account for more than half of AI spending on optical transceivers.

6:40 · Recap

To recap. AI made data movement the bottleneck, and copper is running out of reach. Optics is moving onto the package. CPO switches are in early shipments, with volume expected in 2027 and 2028. Nvidia, Broadcom and TSMC set the pace, while lasers, testing and packaging are the bottlenecks. Startups raised very large rounds in 2026, led by optical I/O and CPO engines. And exits are real, led by Marvell's purchase of Celestial AI. That's the state of silicon photonics in October 2026. This video summarizes public sources and MESH's CORTEX notes. It isn't investment advice, and company figures are the companies' own claims.