GF Securities has released a research report stating it remains optimistic about leading companies in the optical interconnect sector.

In mid-October, the US OCP conference is expected to continue releasing positive news regarding cloud providers' in-house supply chains, and combined with strong third-quarter growth expectations for leading companies, the brokerage believes the optical interconnect sector will continue to perform well in October, with focus on large-cap leaders and small-cap names with earnings support that offer elasticity.

The main views of GF Securities Co.,Ltd. (ASX: 000776) are as follows:

Policy risks in the optical module industry have further decreased. Recently, several industry organizations have voiced their positions on the FCC's expansion of controls to the component level, with the majority opposing. The Information Technology Industry Council (ITI) explicitly opposed including optical modules in the Covered List; the Telecommunications Industry Association (TIA) opposed the FCC's expansion of Covered List controls to components, arguing that a broad extension would disrupt the global communications supply chain and create compliance uncertainty; the Consumer Technology Association (CTA) stated that FCC regulation must adhere to risk-based, precisely targeted principles, and cannot apply a one-size-fits-all approach to categories; components cannot be arbitrarily added to restricted lists. In addition, the US government has recently maintained a policy inclination of supporting accelerated AI construction on the question of whether to put the brakes on frontier AI models, expressing concern about delaying US AI construction. This policy inclination also makes government departments more cautious when introducing restrictive policies in certain areas.

Upstream materials still have supply-constrained segments, and leading domestic laser manufacturers are expected to achieve breakthroughs in overseas markets through globalized layouts. If policy risks at the optical module level are decreasing, upstream key components will also benefit, especially leading domestic companies. Taking lasers as an example, (1) overseas laser companies' capacity expansion progress is far below demand growth, and there will be a huge gap in high-end laser supply in the coming years; (2) leading domestic companies are strengthening their global layouts to reduce potential future supply risks; (3) North American CSPs value supply chain risks and conduct various simulations and responses. The current cooperation between CSPs and leading Chinese laser companies indicates that CSPs judge supply chain risks to be generally controllable.

Risk warnings: risks of AI infrastructure construction falling short of expectations; risks of AI application development falling short of expectations; risks of changes in import and export policies in the AI field; risks of reduced international cooperation.