AI enters the “trillion parameter” era to drive the rise of cross-domain networks! Nomura: It is expected to open up new room for growth in the optical communication market

The Zhitong Finance App learned that in a research report released recently, Nomura pointed out that as the scale of artificial intelligence (AI) model training exceeds trillion parameters and inference requirements grow exponentially, the expansion of a single AI cluster or data center faces limitations such as electricity, heat dissipation, and land at the level of vertical expansion (scale-up) and horizontal expansion (scale-out). This has given birth to distributed training—connecting multiple clusters or data centers to a unified computing power pool for scheduling—which requires the support of a cross-domain network (scale-across network).

Cross-domain environments require high-speed optical network technologies, such as coherent optical modules (coherent optical modules), hollow-core optical fibers (hollow-core optical fibers), and DCI/WAN/metropolitan area routers and switches to build a cross-site backbone network. Compared with traditional DCI (data center interconnection), cross-domain networks have higher networking requirements for bandwidth, latency, and packet loss rates, and must be supported by advanced technologies such as high-speed coherent optical transceivers (800G/1.6T), OCS (optical circuit switches), and air core optical fiber.

Nomura believes that the development of cross-domain networks will accelerate the demand for these technologies. It is expected that Changfei Optical Cable (06869) will benefit from commercialization of air core optical fibers, while Zhongji Xuchuang (300308) and Guangxun Technology (002281) will benefit from the increase in demand for high-speed coherent optical transceivers. The bank rated all three companies' shares as “buy.”

Furthermore, Nvidia (NVDA.US) proposed the concept of “scale-in” (scale-in), which means offloading and acceleration of traffic such as user access, data processing, storage, reading, and security isolation at the north-south border of an AI factory through DPU and Ethernet. Domain expansion connects AI factories and enterprise data to AI computing power, and Nomura believes it will become increasingly important in the agent-based AI (Agentic AI) era.

Main technologies used in cross-domain networks: high-speed coherent optical modules, OCS, and air core fiber

In terms of optical modules, the IM-DD (intensity modulation - direct detection) optical module for horizontal expansion has a transmission distance of less than 2 km, while the coherent optical module can be extended to 80-120 km, so it is more suitable for long-distance cross-domain scenarios. Furthermore, the coherent simplified (coherent lite) transceiver was first proposed by Google (GOOGL.US) in 2021, and it uses a simplified DSP.

Nomura anticipates that coherent simplified transceivers equipped with stronger DSP will be used in cross-domain networks. Also, as described by the bank in “Global AI Trend Tracking - Optical Circuit Switches at the Center of AI Networks”, OCS, as an all-optical switch, can provide flexible networking over long distances and high bandwidth, and may become a key component in cross-domain networks. In terms of optical fiber, air core optical fiber uses air, inert gas, or vacuum to replace quartz as the transmission medium. Compared with traditional optical fiber, it can achieve ultra-low loss transmission latency, and is more suitable for cross-domain networks that require low latency.

Cross-domain network market size (TAM) and competitive landscape analysis

Ciena (CIEN.US) management expected the cross-domain network market to reach US$8-10 billion by 2029 during the second quarter results conference call. Nomura believes that major players in the fields of coherent optical transceivers, OCS, and optical fiber may all benefit from this incremental market.

In the field of 400G/800G ZR/ZR+ modules, Maywell Technology (MRVL.US), Cisco (CSCO.US) subsidiaries Acacia, Ciena (CIEN.US), and Nokia (NOK.US) are still major players. Core suppliers of air core optical fiber include Changfei Optical Cable, Hengtong Optoelectronics (600487), Furukawa Electric subsidiary Lightera, and Relativity Networks. Google, Coherent (COHR.US), and Lumentum (LITE.US) are currently major players in the OCS market.