Behind NVIDIA's Partnership with Corning: An Imminent Surge in Optical Connectivity Demand for AI Data Centers

The multi-year strategic alliance signed between NVIDIA and fiber optic giant Corning reflects the industry trend of an impending large-scale surge in demand for optical connectivity products in the era of AI data centers, providing direct market catalysts for the entire optical supply chain.

On May 6, according to a previous article by Wallstreetcn, U.S. fiber optic leader Corning announced the signing of a multi-year commercial and technical cooperation agreement with NVIDIA. Under the agreement, Corning plans to increase its production capacity for optical connectivity solutions in the United States to ten times its current level and expand its U.S. fiber optic production capacity by more than 50%. On the day the news was announced, Corning's stock price rose 12% in a single day.

According to information from the Zhuifeng Trading Desk, a report by Nomura Securities analyst Yuji Matsumoto on the 7th stated that the core significance of this alliance lies in NVIDIA proactively establishing deep ties with upstream suppliers, indicating its judgment that long-term demand for fiber optics and optical connectivity products will remain strong. This demand not only covers traditional scale-out scenarios but also extends to application areas such as scale-up within server racks and Data Center Interconnect (DCI).

This collaboration marks the third major strategic layout initiated by NVIDIA in the optical supply chain recently. On March 2 this year, NVIDIA established multi-year collaborations with Lumentum Holdings and Coherent, with contract values reaching the billions of dollars. Nomura believes that this series of actions further confirms the large-scale structural demand for optical interconnect products driven by AI infrastructure investment.

Behind the Alliance: Multi-Scenario Demand Superposition, NVIDIA Proactively Locks in Supply Chain

In Nomura's view, NVIDIA's proactive pursuit of cooperation with Corning carries profound signaling significance.

The optical demand in AI data centers is showing a multi-dimensional expansion trend: demand for fiber optics and optical cables in scale-out scenarios continues to climb; in the scale-up direction, requirements for optical connectivity solutions for high-speed interconnects within racks are becoming increasingly stringent; in the DCI direction, the demand for high-bandwidth transmission between data centers is simultaneously amplifying. The resonance of multiple scenarios has led NVIDIA to judge it necessary to lock in core suppliers at a strategic level to ensure production capacity guarantees for the coming years.

Nomura pointed out that it is precisely under the drive of this long-term demand expectation that NVIDIA proactively moved to establish a cooperative relationship with Corning.

Expansion Pace: Significant Dual-Track Expansion of U.S. Domestic Capacity

According to the announcement on May 6, Corning's expansion plan is divided into two levels: production capacity for optical connectivity solutions will be expanded to ten times the current level; fiber optic production capacity will increase by more than 50%. The aforementioned expansions are all targeted at U.S. domestic production bases, and specific implementation timelines have not yet been disclosed.

According to Nomura data, at the same time, major Japanese cable companies are also synchronously promoting large-scale capacity expansion. Sumitomo Electric Industries plans to increase its MT ferrule production capacity to seven times the fiscal 2024 level; Fujikura is continuing to increase investment in fields such as fiber optics and optical connectors. Furukawa Electric has also planned significant capacity growth in the fields of optical devices and high-density optical cables.

Japanese Cable Companies: Global High Market Share Lays Foundation for Benefits

Although Corning is focusing its expansion efforts on the U.S. domestic market, Nomura believes that major Japanese cable companies, leveraging their leading positions in multiple optical sub-categories globally, are also poised to fully benefit from overall market growth.

Among them, Fujikura already has a cooperative relationship with Corning in the field of optical connectors and operates a joint venture in the United States. Nomura pointed out that the realization of the NVIDIA-Corning alliance may have a direct positive impact on Fujikura. Sumitomo Electric Industries holds a global leading position in multiple sub-categories such as submarine fiber optics (global market share of approximately 40%), miniature ITLA (approximately 50%), and continuous wave laser diodes (CW-LD, over 50%), especially possessing differentiated competitive advantages in DCI application scenarios. Furukawa Electric is also expected to benefit from the overall rise in market demand.

Nomura has given a Buy rating to all three of the aforementioned Japanese cable companies.

Industry Trend: Tech Giants Accelerate Locking in Optical Supply Chains

From a broader macro perspective, the cooperation between NVIDIA and Corning is the latest footnote to the trend of tech giants accelerating the locking in of optical supply chains.

According to Nomura's analysis, since the beginning of 2024, Corning has successively signed multi-year agreements with Meta Platforms (value up to $6 billion, in January), two unnamed hyperscale cloud service providers (on April 28), and NVIDIA (on May 6), covering the full range of categories including fiber optics, optical cables, and optical connectivity solutions. Prysmian also announced on April 30 that it had signed a 3-to-7-year agreement with a hyperscale cloud service provider.

The intensifying pace of long-term contract signings is becoming a structural characteristic of the optical product supply chain in the wave of AI infrastructure investment, providing stronger visibility for the long-term revenue of related enterprises.