CITIC Construction Investment: Strong growth in North American CSP capital expenditure, continue to recommend CPO and fiber optic industries

CITIC Construction Investment Research reports indicate that CPO is accelerating its advancement. Lumentum recently stated that the company has secured several hundred million dollars worth of CPO-related orders, with expected CPO revenue of approximately $50 million in Q4 2026 and a breakout expected in the first half of 2027. It is recommended to pay attention to the CPO industry chain: optical engines, FAU, laser ELS, MPO, shuffle boxes, and polarization-maintaining optical fibers. The fiber optic industry is shifting to a stage of “tight supply and simultaneous price and volume increases.” First, focus on companies with optical rod production capacity; second, focus on companies with large fiber optic capacity or specialized optical fibers.

Four North American CSP manufacturers continue to show strong growth in capital expenditures in Q4 2025, with optimistic guidance for future capital spending. We remain optimistic about the overseas AI computing power industry chain. The domestic AI “red envelope” war is ongoing. During Alibaba’s Qianwen event, traffic congestion issues occurred, which also highlights that current computing resources still cannot meet the demand from the shift of large user bases to AI applications.

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CITIC Construction Investment: North American CSP Capital Expenditures Continue to Grow Strongly, Continuing to Recommend CPO and Fiber Industry

CPO acceleration. Lumentum recently announced that the company has secured several hundred million dollars in CPO-related orders, with expected CPO revenue of about $50 million in Q4 2026 and a breakout in the first half of 2027. It is recommended to focus on the CPO industry chain: optical engines, FAU, laser ELS, MPO, shuffle boxes, and polarization-maintaining fibers.

The fiber optic industry has shifted to a stage of “tight supply and rising prices and volumes.” As a capital-intensive industry, we expect that short-term capacity expansion will be difficult, so prices are likely to continue rising.

Four North American CSP companies released their Q4 2025 financial reports, maintaining strong growth in capital expenditures. During conference calls, all expressed that “AI demand is strong, and supply of computing power is tight.” Amazon, Google, and Meta provided optimistic guidance for 2026 capital expenditures, exceeding market expectations. The combined capital expenditure of these four North American CSPs in Q4 2025 was $127 billion, up 60% year-over-year and 12% quarter-over-quarter; total capital expenditure for the year was $413.5 billion, up 65% YoY. Guidance for 2026 includes Amazon at $200 billion, Google at $175–185 billion, and Meta at $115–135 billion, averaging about $505 billion, a 71% increase YoY. We believe that AI development is still in an early stage, and moderate over-investment in infrastructure is a normal industry pattern. We continue to be optimistic about the overseas AI computing power chain.

Amazon: Capital expenditure in Q4 2025 was $39.5 billion, up 42% YoY and 13% QoQ, with over 1GW of new computing capacity added in Q4; total capital expenditure for 2025 was $131.8 billion, up 59%. The company expects about $200 billion in capital expenditure in 2026, a roughly 52% increase, mostly directed toward AI, which is growing rapidly and in high demand. Amazon stated that AWS has accumulated extensive experience in demand forecasting, ensuring no large idle capacity, and is rapidly converting new capacity into revenue.

Microsoft: Capital expenditure in Q4 2025 was $37.5 billion, up 66% YoY and 7% QoQ, with about two-thirds allocated to short-term assets, mainly GPUs and CPUs; total for 2025 was $118 billion, up 56%. The company expects Q1 2026 capital expenditure to decline quarter-over-quarter due to fluctuations in cloud infrastructure construction and leasing delivery times. Microsoft noted that most of its current investments, including purchased GPUs, are under full lifecycle contracts, locking in revenue and avoiding risks of underutilization.

Google: Capital expenditure in Q4 2025 was $27.9 billion, up 95% YoY and 16% QoQ; total for 2025 was $91.4 billion, up 74%. For 2026, Google expects capital expenditure to be between $175 billion and $185 billion, gradually increasing throughout the year, with a median of $180 billion, representing a 97% YoY increase. About 60% will be used for servers and related equipment, and 40% for data centers and network infrastructure. Google stated that the tight supply of computing power is expected to persist throughout the year, and increased capital expenditure will further drive the “investment-driven future growth” flywheel.

Meta: Capital expenditure in Q4 2025 was $22.1 billion, up 49% YoY and 14% QoQ; total for 2025 was $72.2 billion, up 84%. For 2026, Meta projects capital expenditure between $115 billion and $135 billion, with a median of $125 billion, a 73% increase YoY. The company indicated that in 2025, the demand for computing resources grew faster than supply, leading to a shortage throughout the year. Even with significant capacity increases in 2026, most of the time before new facilities come online will still face computing shortages.

Currently, the domestic AI “red envelope” war is ongoing. On February 6, Alibaba’s “Qianwen Spring Festival 3 Billion Free Orders” event was launched, and within nine hours, orders exceeded 10 million, with traffic congestion issues reflecting that current computing resources still cannot meet the demand from users shifting from traditional applications to AI. According to the 57th “China Internet Network Development Status Statistical Report,” as of December 2025, China’s generative AI user base reached 602 million, with a penetration rate of 42.8%, leaving significant room for growth. We believe 2026 could become a year when AI fully moves into application development, further driving large model training iterations and inference computing power growth, and we also recommend paying attention to the domestic computing power chain.

International environment changes impact supply chain security and stability, affecting the progress of companies expanding overseas; tariffs exceeding expectations; slower-than-expected AI industry development affecting demand for cloud computing industry chain companies; increased market competition leading to rapid declines in gross margins; exchange rate fluctuations impacting foreign exchange earnings and gross margins of export-oriented companies, including ICT equipment, optical modules, and optical device sectors; slower-than-expected development of digital economy and Digital China initiatives; telecom operators’ cloud business growth below expectations; operator capital expenditure below expectations; cloud vendors’ capital expenditure below expectations; and demand for communication modules and smart controllers below expectations.

(Article source: Jiemian News)