Goldman Sachs doubles Zhongji Innolight target to 2,581 yuan on AI demand

Goldman Sachs more than doubled its price target for Zhongji Innolight, betting the optical module leader will ride Nvidia's AI server upgrade cycle from 800G to 3.2T.

Goldman Sachs raised its 12-month target for Zhongji Innolight to 2,581 yuan from 1,187 yuan, more than doubling its prior estimate.

"Zhongji Innolight is positioned to benefit from the accelerated transition to 1.6T and 3.2T optical modules driven by Nvidia's AI server roadmap," Goldman Sachs said in the report dated July 17.

The bank raised its 2026-2028 net profit forecasts by 65 percent, 108 percent and 119 percent, respectively, and now expects revenue to reach 1,236 billion yuan in 2026, 2,496 billion yuan in 2027 and 3,340 billion yuan in 2028.

The upgrade points to the global optical module market entering a new expansion cycle, with Goldman Sachs projecting the market will grow to 726 billion yuan by 2027 from 342 billion yuan in 2025, driven by 800-gigabit, 1.6-terabit and 3.2-terabit products.

Silicon photonics penetration accelerates

Goldman Sachs expects silicon photonics to reach 60 percent penetration in 800G modules, 80 percent in 1.6T and 100 percent in 3.2T by 2026. SiPh-related revenue as a share of total optical module industry revenue will rise to 62 percent by 2028 from 28 percent in 2025, the bank said.

Zhongji Innolight, which became the world's largest optical interconnect solutions provider in 2025 with a 21.2 percent market share, has already commercialized high-speed silicon photonics modules at scale, giving it a structural cost advantage over rivals using traditional EML solutions.

Profitability and cash flow improve

The company's gross margin is expected to expand to 50 percent by 2028 from 42 percent in 2025, while net margin reaches 33 percent, according to Goldman Sachs. Return on equity will rise to between 52 percent and 61 percent over 2026-2028, up from 44 percent in 2025.

Despite capital expenditure rising 155 percent year over year to 70.3 billion yuan in 2026 for new capacity, free cash flow is projected to reach 85 billion yuan in 2026, 623 billion yuan in 2027 and 1,115 billion yuan in 2028. The company's cash position is expected to grow to 1,951 billion yuan by 2028 from about 110 billion yuan in 2025.

The upgrade from one of Wall Street's most influential banks reinforces the thesis that AI infrastructure spending will sustain through 2028, with optical connectivity as a key bottleneck. Investors will watch Nvidia's next GPU architecture roadmap and Zhongji Innolight's quarterly results for signs of 1.6T module volume ramps.

This article is for informational purposes only and does not constitute investment advice.