The Next AI Market Could Grow 10X in Just a Few Years

Now let's talk about the size of this opportunity, um because this is where the numbers start getting crazy. Um Goldman Sachs estimate that networking content per AI compute system could rise from 315,000 today to roughly 9.4 million in in video's next generation, which is like a 29 x increase. The reason is simple. As I mentioned, AI [snorts] systems are just getting much bigger and bigger and GPUs need to move uh far more for more data between each other and networking is just is becoming just as important as the chips themselves. And Goldman's bigger claim is that total uh addressable market uh could grow from 11 or 15 billion today to 154 billion by 2028, which is 9 x increase in a few years and Goldman Sachs is not alone on this. LightCounting sees AI clusters uh grow from 17 billion to 100 billion by 2030. Morgan Stanley estimates scale of networking could reach 73 billion by 2030, while city interconnect optical interconnect could reach to 92 billion and you get the gist of this. So, almost everyone agrees on the direction of this, that AI networking is like becoming a massive market. >> So so that's what you call So that's what you call photonics or this like optical part is AI networking? Is it or is it part of AI networking? >> it's part of AI networking. >> It's part of AI networking. >> Okay. >> Yeah, there's so much more components that goes into it. >> of course. But yeah, and you're talking about I'll get to I'm just going to go back to the original slide. Um >> Yep. >> You're talking about the copper connection copper connection circuit boards and other networking >> tons of other components, but it's it's specifically this part of the not just getting these pieces close together, but also the actual cable, right? Or is it just or is it just building the module that has them close together like you're saying in your third um your third type here, the CPO. >> Bit of both. >> Both. Okay. Yeah, so just the the overall efficiency of that transfer of info. >> Correct. Correct. >> Got it. Okay. Okay. >> But the most aggressive, you know, part of Goldman Sachs forecast is actually the co-packaged optics that we just talked about. Um Goldman believes CPO could go from 91 billion by 2028 uh or market by 91 billion by 2028 uh with annual revenue growing from 1 billion this year to 24.8 billion next year and then 71 billion by 2028. So this is a massive massive scale. So >> Oh wow. Okay, so the revenue has barely come in. And is that revenue coming from like the deals that have been put in place for new data centers, basically? Like is that Yeah. Okay. Okay. Okay. And what what are the companies sell that do this? Like what what part of it are they selling? Like they're selling this actual the entire system, right? Like the co-packaged package optic system. They're selling that whole thing. >> Yeah, there's Yeah, there's different parts of it. They're selling lasers. They're They're They're selling optical modules. They're selling There's a bunch of systems that goes into this. >> Do they assemble the CPO? Do they assemble the CPO and ship it? Or the CPO is assembled at the data center? >> They ship it to Taiwan and they they assemble it there. >> Okay. Okay. Okay, got it. So the TAM within the next 2 years is 91 billion. The estimated revenue right now, the revenue this year is what 1. 2 billion or 1.5 billion, whatever you're saying. >> basically. >> 1 billion. Next year it's expec- expected to 24x. >> Yep. >> And in 2 years it's expected to 70x. And that projection was Goldman Sachs, right? >> Correct. Correct. >> Got it. Okay. >> But I do want to say Goldman Sachs is uh the most like aggressive on these numbers. Um but like I I I do believe in the direction that we're heading to um that, you know, co-packaged optic optics is becoming like a major part of AI infrastructure. But, like I said, this aggressive is a little too much aggressive, in my opinion, about how quickly the industry can, you know, actually build it and deploy it. And cuz the problem is the supply chain still has to scale, the technology still has to be test tested at like these larger scales, and the data centers are clearly not going to replace everything overnight, you know. So, this may take some time. >> Real-world assets like funds, treasuries, and private credit are still running on built decades ago. Gated, paperwork-heavy, slow to settle. Everyone's talking about tokenizing them, but far fewer can actually do it, and do it without cutting regulatory corners. Securitize can. It's the SEC-regulated infrastructure bringing real-world assets on chain. 9 years in, native tokenization, not wrapped, backed by BlackRock, Morgan Stanley, and Cathie Wood's Ark Invest, and chosen by the New York Stock Exchange, VanEck, BNY, and Apollo to do it at scale. It's the regulated bridge between traditional finance and crypto. Tokenize the world at milkroad.com/securitize. >> It could take time. A lot of things could go wrong along the way, but in the current path of like we're going to build all these data centers, we're going to need way more compute, this is this is how this part is expected to grow basically. >> Correct. And there's other part of this, right? Like the pluggable optical modules that we just talked about earlier. Um that that basically what that is is they sit at the front of the switch and converts electric signals into light. You know, they're not going away, either. They're still going to be used in in these data centers, because if you pull if you actually look at that chart, um Goldman expects that global uh module Yep, market to grow from 34 billion in 2025 to 69 billion in by 2028. The biggest change is the product mix. Like you have the older modules, which is the 400 gigawatt, becomes a smaller part of the market, while, you know, the newer modules like the 800G or the 1.6T and eventually we're all moving to 3.2 terawatt products take over. So, these are like all these you know, different things like plug modules and co-packaged optics. These are all just going to grow massively and it's not like a one size or one market takes all. They they can still continue to grow together. >> Mhm. Okay. >> So, the next question you you know, why am I telling you this? How can you like benefit from all this, right? That's like the key question that you know, you always want to answer. So, I do have some recommendations on some of the some of the stocks you know, you can buy and the first stock I want to talk about is AAOI, which is Applied Optoelectronics. It's a very small cap trading around 102 right now. Market cap is around 8.2 billion. So, this is a very tiny company. And I got to flag this right away because this stock has traded between $18 and $233 roughly in the past 52 weeks. So, there's been massive ups and downs with this stock. This is >> Why? Why? Why? Why is there been so much so much volatility? >> This is a very high beta stock because this is sentiment driven. >> Yeah. >> And there's a lot of news that comes out regarding these you know, co-packaged optics and around this sector. So, yeah, this is just a very high beta play and yeah, that's the main point I want to make with this cuz if you're actually going to buy this you you got to understand what you're signing up for. So, so what do they do? What do they actually do? Easiest way to think about it is is a company that builds fiber optics products that help move data using light. So, it's the large it's largest opportunity is in data centers, where it produces high-speed optical products for 100 gigawatts, 400 gigawatts, 800 gigawatts, and now 1.60 gigawatt connections. And if you look at the image, um this image actually shows where all the markets AAOI serves. You have the data center market. You have the broadband band access. You have the telecom um and fiber to the home and the sensing field. And the data center business is just the part that's growing the fastest and the main reasons main reason why the investors like me are like, you know, paying attention to this story because their data center um transceivers run from all the way to 100G, all the way to 800G with 1.6T now entering the market, too. And the what's cool is most of these use AAOI own in-house lasers. Now, I'll I'll explain what that is in a bit. Um but their most established businesses historically has been the cable broadband business, but the mix is shifting pretty fast um to their AI data center business um what that they sell, all the optical modules that they sell. Um but their real edge is it is that they grow their own lasers um chips in-house. And the lasers matters because fiber cannot carry data without a light source. So, by making its own lasers, AAOI controls one of the most critical and supply concerned constrained part of the entire module. They got their own manufacturing process at their fab in Sugar Land, Texas. Um then they ship those over to Tai Taiwan for packaging. But most competitors either design or manufacture, but they but they don't do both and and and AAOI actually do. Because this matters way more than it sounds because there's actually currently a industry-wide shortage of these high-speed lasers because a Chinese competitor um locked up reportedly locked up 70% of one of the major, you know, laser supply capacity. Um and because AAOI makes their own, um they're somewhat, you know, insulated from that whole bottleneck. But the ca- caveat with this is they're not unique here. There's competitors like Coherent also runs their own laser fab and honestly they're like kind of further ahead. Um so there is competition in this in this field as well. >> Their advantage for AOI AAOI is that despite competition they own most of their stack. Right? Like they they yeah. They they don't they don't rely on too many others for the components or for the manufacturing. >> Well, for the their in-house lasers, yes. But there there's in-house lasers. Yeah. There's a whole different side of this, right? Um because here's what what's actually like interesting about them right now. Their 400 gigawatt ship uh shipments are up something like 10x over year-over-year. Their 800G ramp is accelerating after some qualification um and the firm like some there was some delay like last year, but they're they're they're well past that and um they're, you know, I think that makes up about 5.6% of their data center revenue. But by April they disclosed that they had a 124 million in cumulative 800G orders from a major hyperscaler in like a month um including seven a single 71 million order in there. Um and the management is actually guiding 800G to become the dominant data center contributor this quarter and their 1.6T volume order came in in March. Deliveries are starting in Q3 and the earnings on the earnings call management actually said this out loud and I love this line. This they basically said the revenue is limited by your production capacity and our supply chain not by market demand. And they expect that demand to keep exceeding capacity through at least mid-2027. So, their ability to grow is right now depends on their build-out and they can't build-out fast enough cuz everything is just basically getting sold out. Now, there there is obviously risk to this. You know, I I think AOI is like I said is a very high beta stock. So, you really have to be careful with this stock but it is it had its big run-up. Now, it's kind of consolidating around the 100 100 dollars and I think this is a good time to pick up this stock right now. Another major concern is their customer concentration and it's actually getting more concentrated. Their top 10 customers are 96.6% of their, you know, revenue last year and and just two customers made up 82% of their total revenue last year. So, that could be a really problem if they, yep, if they if somebody pulls back. >> Just going to pause there for a second to point out that the market is showing signs of something going to different happening and our analysts at Milkroad Pro are all over it. They spent the last couple weeks making a lot of trades, getting out of some positions, and then getting into a lot of new ones getting ready for the next wave of robotics, space, or even kind of picking some different AI winners. If you want to see what they have in their portfolios, what positions they're opening, it's just a dollar in Milkroad Pro at the link below. Want to stay ahead of the biggest technological shift in history? Subscribe [music] now to get insights straight from the sharpest minds tech and finance. Quickly you'll note this show's for educational purposes only. [music] Nothing here is financial advice. Investing always carries risk. Never invest more than you can afford [music] to lose. 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