📌 InP Shortage May Differentiate AI Optics Returns
The bottleneck in AI optical interconnects may be shifting from module shipments to upstream materials. InP substrates and epitaxial wafers are key materials for optical communication devices. Suppliers say inventories have become extremely tight, and prices are expected to rise by more than 10% in the fourth quarter. If this price increase materializes, cost pressure will be passed directly to companies in the supply chain that rely on related devices.
This merits attention not only because materials are becoming more expensive. Tight upstream supply means that AI-driven demand growth has begun to encounter supply constraints. Whether higher material costs can be passed on to customers will affect the gross margins, order prioritization, and cash flow of module and optics companies. Downstream customers, meanwhile, will have to bear higher procurement costs or face uncertainty in delivery arrangements.
Equity returns may not be distributed evenly along the supply chain. Coherent is positioned as a large-scale, platform-type photonics leader; another view holds that Lumentum has higher profit density and earnings leverage in the AI optics value pool. The practical implication of the difference between the two is that the former’s scale and product coverage matter more, while the latter may be more sensitive to changes in its high-value product mix.
Therefore, higher material prices do not in themselves mean that all optical communications companies will benefit simultaneously. What truly needs to be verified is how long supply tightness can persist, whether price increases can be realized, and to what extent each company can pass costs through. Those with weaker pricing power may bear gross-margin pressure first; only those with more advantageous product structures and customer bargaining power are more likely to turn scarcity into profit.
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