Q2 saw a strong rebound in optical module sales, driven primarily by 800G Ethernet modules, with major companies reporting significant revenue growth and market momentum.

Market Trends

The global optical transceiver market experienced a 10% quarter-over-quarter growth in Q2, following a flat Q1, largely fueled by demand for 800G Ethernet modules and the initial commercial shipments of 1.6T modules . While 400G module shipments declined as hyperscalers like Amazon and Meta transitioned to higher-speed optics, 400G and 800G active optical cables (AOCs) continued to perform strongly, supporting short-reach interconnects in data centers . Overall, the data center optics market is projected to grow over 60% in 2025, with revenue exceeding $16 billion, driven by 400G and 800G modules .

Technological Drivers

The 800G optical module is a key driver of growth, featuring high-performance DSP chips, laser drivers, and transimpedance amplifiers. It uses PAM4 modulation and an 8-channel parallel architecture, enabling 100Gbps per channel and optimized for high-bandwidth, low-latency GPU interconnects in AI clusters . Initial 1.6T modules are entering the market but currently contribute only modest revenue, with shipments expected to remain below one million units until 2026 .

Company Performance

• Lumentum reported $665.5 million in net revenue for its fiscal Q2 2026, representing over 65% year-over-year growth, with strong profitability and expansion in non-GAAP operating margins . The company highlighted growth opportunities in optical circuit switches (OCS) and co-packaged optics (CPO), with backlogs exceeding $400 million and multi-hundred-million-dollar orders for future delivery .
• Fabrinet saw a 24% year-over-year increase in telecom revenue, which now accounts for 54% of its optical sales, reflecting strong demand in telecom and data center segments .
• Analysts note that companies investing in silicon photonics and innovative optical solutions are better positioned for sustainable growth, while those relying solely on traditional EMLs may face margin pressures .

Regional and Market Dynamics

While US technology giants continue to increase investment in optical modules, China's major telecom operators have reduced capital expenditures by 10% year-over-year, totaling $39.8 billion in 2025 . M&A activity is active, with US operators acquiring fiber assets and European operators divesting non-core businesses to optimize operations .

Summary

Q2 marked a recovery and growth phase for optical modules, with 800G modules leading the market, initial 1.6T shipments entering, and strong performance from major players like Lumentum and Fabrinet. The market is being driven by data center expansion, AI workloads, 5G deployment, and hyperscaler infrastructure upgrades, positioning optical modules as a critical component in next-generation connectivity solutions .