Hengtong Optic‑Electric Co. Ltd. – Riding the AI‑Driven CPO Wave

Hengtong Optic‑Electric, a Shanghai‑listed supplier of optical fibers, rail‑transit cables and high‑performance solutions for big data, smart ocean, quantum communication and power systems, has positioned itself at the nexus of China’s burgeoning artificial‑intelligence (AI) infrastructure boom. Its recent performance, reflected in the sharp uptick of the CPO (Co‑Packed Optics) sector and the staggering 50‑plus‑percent penetration forecast for light‑module deployments, signals a decisive shift in the industry’s capital allocation and product strategy.

1. The CPO Surge: From Concept to Commercial Reality

The Chinese Ministry of Industry and Information Technology’s “National Compute Interconnect Node Construction” notice (dated February 6) has unlocked a new round of state‑backed investment in AI super‑computing. This policy, coupled with Nvidia’s announcement of large‑scale CPO deployment to address the escalating power‑efficiency challenges of AI workloads, has propelled the CPO sector into a new growth trajectory.

  • Capital outlay in the U.S. CSP market: Four leading cloud‑service providers reported a combined 2025Q4 capital expenditure of US$127 billion, a 60 % YoY rise, underscoring the global appetite for AI hardware.
  • Domestic momentum: Chinese equities such as Hengtong’s peers—Long‑Fei Optics and Hengtong’s own subsidiaries—have experienced consecutive price jumps, reflecting investor confidence in the CPO narrative.

Hengtong, whose core competencies lie in optical fiber manufacturing, is poised to capture a share of this wave. The company’s diversified portfolio, spanning high‑speed data links for data centers and specialized cable solutions for power grids, aligns with the multi‑faceted demands of AI infrastructure.

2. Market Dynamics: AI Demand Outpaces Supply

The recent “AI application explosion” noted by market analysts—evidenced by the 0.13 % rise in the Shanghai Composite and the 0.31 % climb in the STAR Composite—corroborates a broader trend: AI services are driving unprecedented demand for compute‑intensive hardware.

  • Supply constraints: CSP firms repeatedly highlighted “tightness” in compute supply during earnings calls, pointing to a bottleneck in optical interconnects and power‑delivery components.
  • Pricing pressure: The CPO sector’s projected penetration surpassing 50 % indicates that firms are willing to absorb higher capital costs to secure performance advantages.

These dynamics place Hengtong in an advantageous position: the company’s expertise in optical fibers and rail‑transit cables is directly applicable to high‑bandwidth, low‑latency interconnects required by AI data centers.

3. Financial Health and Growth Outlook

  • Market capitalization: ¥94.66 billion, a substantial size for a mid‑tier supplier within the communications‑equipment segment.
  • Price‑earnings ratio: 32.69, reflecting market expectations of continued upside amid the AI boom.
  • Share price trend: Closing at ¥38.69 on February 8, within a 52‑week range of ¥13.86 to ¥39.15, illustrates a resilient upward trajectory.

The firm’s 2003 IPO and its sustained presence on the Shanghai Stock Exchange provide a stable investor base. Moreover, the company’s focus on emerging sectors such as quantum communication and smart ocean infrastructure diversifies its revenue streams beyond the traditional telecom market.

4. Competitive Edge and Strategic Imperatives

  1. Technology Leadership: Hengtong’s optical‑fiber production capabilities—especially its high‑frequency, low‑loss fibers—are critical for the next generation of optical modules.
  2. Supply Chain Integration: The company’s vertical integration, from raw material sourcing to final cable assembly, reduces lead times and cost volatility, a decisive advantage as AI hardware demands tighten.
  3. Policy Alignment: By aligning product development with national priorities (e.g., the 1 + M + N compute node architecture), Hengtong can tap into government funding and preferential procurement.

5. Risks and Counterpoints

  • Capital‑intensive R&D: Advancing CPO technologies requires significant upfront investment; misallocation could erode margins.
  • Competitive Pressures: Global players (e.g., Intel, Samsung) are also investing heavily in optical interconnects, potentially diluting market share.
  • Regulatory Shifts: Changes in export controls or domestic policy could affect supply chain dynamics, especially for high‑performance fiber optics.

Despite these risks, the convergence of AI demand, supportive policy, and Hengtong’s intrinsic capabilities creates a compelling case for sustained growth.

6. Bottom Line

Hengtong Optic‑Electric is not merely a bystander in the AI‑driven optical‑module renaissance; it is a front‑line player positioned to benefit from the sector’s explosive expansion. The company’s robust fundamentals, coupled with an accelerating demand for CPO solutions, suggest that Hengtong is set to capture a significant slice of the market. Investors attentive to AI infrastructure trends should keep a close eye on Hengtong’s earnings disclosures and product pipeline developments, as the firm’s fortunes are increasingly tied to the success of the global AI ecosystem.