According to the latest silicon photonics industry analysis from TrendForce, the rapid expansion of AI training and inference demands is driving AI data centers towards higher power consumption, density, and larger-scale clusters. The substantial energy consumption issues arising from data movement are prompting cloud service providers (CSPs) to elevate the strategic importance of interconnect technology to match that of computing technology. The interconnect architecture has become a critical strategic asset determining the expansion speed, energy efficiency, and supply chain control of AI Factories. Consequently, TrendForce projects that the market for Co-Packaged Optics (CPO) and Near-Packaged Optics (NPO) will experience significant growth, surging from approximately $100 million in 2025 to surpass $39 billion by 2030.
Key Market Dynamics and Strategic Directions
TrendForce indicates that as data transmission rates advance from 100 G/lane to 200 G/lane and continue towards 400 G/lane, the limitations of traditional copper wiring in terms of signal loss, compensation costs, and power consumption are becoming increasingly apparent. The core challenge for next-generation AI data center design is how to bring optical transmission closer to switch chips, shorten electrical pathways, and reduce system power consumption. As a result, three primary technological pathways—Linear-drive Pluggable Optics (LPO), NPO, and CPO—are simultaneously attracting industry attention.
Examining the deployment strategies of various CSPs, NPO remains the near- to medium-term transitional solution for most operators. Its advantages include shortening electrical transmission distances, reducing power consumption, while preserving modularity, serviceability, and multi-vendor competitive flexibility. CSPs like Alibaba and Tencent view it as their primary near-term focus and are promoting related open standards through the Open Compute Project's Open Data Center Committee. Meta and Microsoft also lean towards prioritizing NPO deployment, advancing an open interconnect ecosystem in conjunction with initiatives like the Optical Compute Interconnect Multi-Supplier Agreement. Amazon is pursuing a multi-supplier strategy, collaborating with STMicroelectronics on NPO.
In contrast, CPO is better suited for medium- to long-term application scenarios characterized by high power consumption, high density, and high integration. Within the NVIDIA ecosystem, for example, some small and medium-sized CSPs show a greater inclination to adopt CPO solutions offered as complete AI systems, primarily considering factors like system integration capability, delivery efficiency, and platform consistency. However, TrendForce notes that for CPO to achieve mass production, challenges such as yield rates, serviceability, fiber optic connector standards, and indium phosphide (InP) laser supply must still be overcome. Specifically, Scale-out CPO switches require the integration of numerous optical engines simultaneously, posing a significant test for overall system yield. Furthermore, detachable fiber optic connection solutions from Corning GlassBridge, Teramount, the Senko alliance, and Intel OCI are still developing in parallel, resulting in a diverse technological landscape.
Infrastructure Competition and Future Outlook
Despite CPO's slower progress towards mass production and widespread adoption due to technical hurdles, optical communication infrastructure has become a new battleground in the AI infrastructure race. To secure the future expansion capabilities of their AI Factories, end customers are beginning to preemptively lock in key resources such as lasers, optical receivers, InP substrates, and optical fiber. Since 2024, InP substrate supply has remained tight, making lasers and optical receivers strategic resources prioritized by the industry. For instance, AMD has been actively securing materials for external laser solutions, negotiating large procurement orders for high-power continuous-wave laser chips with relevant suppliers to ensure future capacity is not constrained by NVIDIA or other major CSPs.
Additionally, major fiber optic manufacturer Corning has received investments, expansion support, or long-term procurement contracts this year from Meta, NVIDIA, and Amazon, indicating that large CSPs are viewing optical fiber as a strategic resource within AI infrastructure.
TrendForce forecasts the CPO/NPO market to exceed $39 billion by 2030, with growth momentum between 2028 and 2029 expected to surge sharply as Scale-up architectures begin adopting optical interconnects. Simultaneously, the market for pluggable optical modules is projected to remain around $26 billion by 2030, indicating that the future of optical interconnect will not be dominated by a single technological pathway. Instead, a multi-technology, parallel development pattern will form across different application scenarios, based on considerations of power consumption, distance, cost, maturity, and supply chain control.