The White House has been clear: AI is a race, and the United States needs to win. It is nonetheless increasingly willing to trade off speed against security. Regulators are weighing a ban on new models of Chinese-made optical transceivers, critical components for shuttling information around data centers, Reuters reported on Tuesday. At least in this case, woes elsewhere might mask the impact.
Optical transceivers are a small but important market
Optical transceivers convert electrical signals from chips into light that can then zip information around at incredible speed. Even amid rapid growth, it’s a relatively small market: Bank of America analysts predict sales should hit $26 billion this year, up from under $13 billion in 2025. Yet scaling up these super-fast links is critical to building larger and larger computing clusters.
Chinese companies accounted for more than half of global optical transceiver shipments last year, according to technology market research outfit TrendForce. Zhongji Innolight 300308.SZ, valued at over $150 billion, said in the prospectus for its recent Hong Kong listing that it accounts for 28% of the market.
Delays in data-center buildout may soften the near-term hit
The silver lining, such as it is, is that the timing may make this trade-off easier. Data-center construction is already delayed, and growing political backlash over AI’s voracious appetite for power is rising: Texas halted new approvals this week so regulators could audit their backlog. About 60% of projects slated for 2027 have not yet broken ground, according to JPMorgan. Any extra delay from optics restrictions may be partly hidden by these more immediate bottlenecks.
There are real reasons to worry about the security and integrity of this gigantic industrial buildout. The problem is that Chinese and U.S. supply chains remain interwoven, whether in supplies of rare earths or revenue derived from selling chips internationally or else. The costly trade-off between speed and safety will not always be so easily side-stepped.
U.S. suppliers could gain, but supply chains remain tangled
Key details remain unclear, and a ban that only affects new products rather than existing ones may mitigate the impact. Still, the proliferating array of AI chips getting stuffed into data centers – with Alphabet’s GOOGL.O TPUs and Amazon.com’s AMZN.O Trainium silicon jostling with Nvidia’s NVDA.O graphics processors – means that demand is running exceptionally high. Supply is falling short by as much as 60% for certain kinds of transceivers, according to a study by McKinsey from last year. U.S. companies like $65 billion Coherent COHR.N and $66 billion Lumentum LITE.O, as well as Europe’s Nokia NOKIA.HE, may benefit as alternative suppliers. But here as elsewhere companies could be wrong-footed by China’s stranglehold over key minerals.
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