Rising AI cluster power demand and 102.4 Tbps switch launches lift revenue from USD 180.00 Million in 2025 to USD 6,240.00 Million by 2035, a 31.8% CAGR over 2026–2035, with North America leading adoption.
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The Co-Packaged Optics Market was valued at USD 180.00 Million in 2025 and is estimated at USD 520.00 Million in 2026, rising to USD 6,240.00 Million by 2035 at a 31.8% CAGR from 2026 to 2035. North America leads with roughly 56.7% share, while optical engines dominate with approximately 51.9% share.
Our findings suggest that revenue is concentrated in AI switching, optical engines and North American deployments.
Values in USD Million
By Component: Optical engines held the largest share, expanding from USD 95.00 Million in 2025 to USD 3,050.00 Million by 2035; Advanced packaging and integration is the fastest growing at 32.9% CAGR from 2026–2035.
By Application: AI scale out switching held the largest share, expanding from USD 165.00 Million in 2025 to USD 3,740.00 Million by 2035; AI scale up interconnect is the fastest growing at 50.7% CAGR from 2026–2035.
By Data Rate per Lane: 200G per lane held the largest share, expanding from USD 62.00 Million in 2025 to USD 2,800.00 Million by 2035; 400G per lane is the fastest growing at 65.2% CAGR from 2026–2035.
Dominant Region: North America held 56.7% of 2026 revenue, growing from USD 100.00 Million in 2025 to USD 2,860.00 Million by 2035 at 28.7% CAGR.
Fastest-Growing Region: Asia-Pacific expands at 35.2% CAGR from 2026–2035, reaching USD 3,020.00 Million by 2035.
Dominant Country: U.S. revenue of USD 275.00 Million in 2026 heads toward USD 2,640.00 Million by 2035, a 28.6% CAGR.
Fastest-Growing Country: South Korea advances at 37.1% CAGR from 2026–2035, rising from USD 21.00 Million in 2026 to USD 360.00 Million by 2035.
The market offers an absolute opportunity of USD 5,720.00 Million between 2026 and 2035 for suppliers that secure laser and packaging capacity.
According to NMSC analysis, accelerator optical I/O rises from 10.6% of 2026 revenue to 35.3% by 2035, shifting buyers beyond switch vendors.
The Co-Packaged Optics Market covers optical engines, external laser sources and the advanced packaging and integration that place photonics beside switch ASICs and accelerators inside a single package. The scope excludes pluggable transceivers, active optical cables and system level switch chassis value. Revenue is counted separately for optical engines, external laser sources, and advanced packaging and integration only where their values can be independently identified. Bundled or overlapping component values must be excluded to avoid double counting
Technology adoption follows switch generations. Broadcom introduced its third-generation Tomahawk 6 – Davisson platform on October 8, 2025, and NVIDIA announced Spectrum-X Photonics and Quantum-X Photonics on March 18, 2025. Energy policy shapes demand indirectly, because the International Energy Agency projects data centre electricity use near 945 TWh by 2030, which raises the value of every watt saved in the network. We found that this power logic, rather than regulation, sets the pace of qualification.
Our assessment indicates that four structural trends are reshaping how photonics moves from the faceplate into the package.
Broadcom states that its Tomahawk 6 – Davisson switch runs at 200 Gbps per channel, which doubles the line rate and bandwidth of the second generation Bailly design. As electrical lane rates increase, signal-integrity and transmission-distance constraints can make closer integration of optical engines and switch ASICs more attractive. Switch vendors gain faceplate density, while operators gain lower power per bit. Qualification of 200G engines therefore sets the order book of the Co-Packaged Optics Market for 2026 and 2027.
On March 2, 2026 NVIDIA announced multiyear agreements with Lumentum and Coherent, each backed by a USD 2,000.00 Million equity investment and a multibillion-dollar purchase commitment. During our market evaluation, we noticed that lasers have become the scarcest input because indium phosphide capacity cannot be added quickly. Lumentum also reported an initial order for external laser source modules in its fiscal 2026 results, confirming that demand has moved from sampling to ordering.
Optical I/O placed beside accelerators targets the links that connect GPUs inside a rack. Marvell completed its acquisition of Celestial AI in February 2026 to add Photonic Fabric technology to its data centre portfolio, and Ayar Labs positions its TeraPHY optical engine for accelerator sockets. We found that this segment starts from a small base of USD 55.00 Million in 2026 yet grows fastest in the Co-Packaged Optics Market, because rack bandwidth demand outpaces what copper can carry.
TSMC describes its Compact Universal Photonic Engine as an integration scheme that stacks electrical and photonic dies and can co package with a host ASIC. Based on research conducted by NMSC, we found that foundry packaging slots now decide shipment timing, since optical engines compete with accelerators for the same advanced packaging lines. Vendors that secure foundry capacity early convert design wins into revenue faster than those that depend on outsourced assembly. Advanced chip packaging capacity therefore acts as a gating resource.
| AI data centre power constraints | driver | +7.5% | Global, led by North America | 2026–2032 |
| Switch bandwidth moving to 102.4 Tbps | driver | +6.0% | North America, Asia-Pacific | 2026–2030 |
| Hyperscale qualification and reliability milestones | driver | +4.5% | North America | 2026–2029 |
| Strategic capacity commitments in lasers | driver | +3.0% | North America, Asia-Pacific | 2026–2030 |
| Advanced packaging and optical engine yield limits | restraint | −5.5% | Asia-Pacific | 2026–2029 |
| Serviceability and continued pluggable optics improvement | restraint | −4.0% | Global | 2026–2031 |
| Ecosystem fragmentation across vendor architectures | restraint | −2.5% | Global | 2026–2030 |
Power availability is the primary driver. The International Energy Agency projects that electricity demand from data centres worldwide will more than double to around 945 TWh by 2030, with AI optimised facilities more than quadrupling their demand. As AI data centres deploy higher-bandwidth networks, power consumption per bit becomes an important design consideration. CPO adoption depends on the power, cost, reliability and serviceability trade-offs of each network architecture. NVIDIA reports 3.5 times better power efficiency for its photonics switches than traditional networking, which supports this driver of the Co-Packaged Optics Market.
Switch capacity is moving from 51.2 Tbps to 102.4 Tbps and beyond. Broadcom describes Davisson as the first 102.4 Tbps Ethernet switch with co packaged optics, using 16 optical engines of 6.4 Tbps each, while NVIDIA lists Spectrum-X Photonics configurations up to 400 Tbps. We observed that each step in capacity widens the cost and power gap against pluggable modules, which pulls datacenternetworking buyers toward integrated optics at the largest sites.
Yield and packaging capacity restrain near term growth. We estimate that engine yield and advanced packaging limits remove 5.5 percentage points from the CAGR through 2029 (industry derived estimate). Operators also value serviceability, and fixed optics change how failed links are replaced. Pluggable optics keep improving, which extends their useful life at moderate port counts. Together these factors explain why revenue stays below USD 1,000.00 Million until about 2029.
Accelerator optical I/O opens a buyer group beyond switch vendors. Custom accelerator designers can place engines beside compute dies and extend rack bandwidth without copper limits. The AI scale up interconnect segment grows from USD 55.00 Million in 2026 to USD 2,200.00 Million by 2035, and optical engine suppliers capture most of that value because every package requires engines.
Laser suppliers with qualified indium phosphide capacity hold the strongest position, because each package needs continuous wave light from an external source. Lumentum and Coherent both signed multiyear NVIDIA agreements in March 2026. The external laser sources segment reaches USD 1,640.00 Million by 2035, and suppliers that add fiber attach assemblies widen their share of each switch bill of materials.
North America and Asia-Pacific offer the clearest capacity led openings. Lumentum plans a new fabrication facility and Coherent plans to expand its U.S. manufacturing footprint under the NVIDIA agreements, while TSMC anchors engine integration in Taiwan. Asia-Pacific grows at 35.2% CAGR, the fastest regional rate, and local assembly partners benefit from proximity to foundry packaging lines.
| Region | 2025 (USD Million) | 2035 (USD Million) | CAGR (%) |
|---|---|---|---|
| North America | $10.0 USD Million | $40.0 USD Million | 9.0% |
| Europe | $17.1 USD Million | $51.1 USD Million | 27.0% |
| Asia-Pacific | $24.2 USD Million | $62.2 USD Million | 25.0% |
| Middle East & Africa | $31.3 USD Million | $73.3 USD Million | 23.0% |
| Latin America | $38.4 USD Million | $84.4 USD Million | 12.0% |
Our findings suggest that competition centres on who controls silicon photonics design, engine manufacturing and advanced packaging.
NMSC's analysis indicates that seven companies met our verification standard, listed here in ranked order.
The Co-Packaged Optics (CPO) market ecosystem brings together technology providers, manufacturers, network operators, system integrators, and research institutions. Collaboration among these stakeholders drives technological innovation, supports CPO adoption, and addresses the growing need for high-bandwidth, energy-efficient connectivity in data centers and advanced networking systems.
We observed that recent announcements cluster around product launches, capacity agreements and acquisitions.
| Date | Event |
|---|---|
| March 18, 2025 | NVIDIA unveiled Spectrum-X Photonics Ethernet and Quantum-X Photonics InfiniBand switches built on co packaged optics. |
| February 2026 | Marvell completed its acquisition of Celestial AI and its Photonic Fabric optical interconnect technology. |
| March 2, 2026 | NVIDIA announced a multiyear agreement and a USD 2,000.00 Million investment in Lumentum for lasers and optics. |
| March 2, 2026 | NVIDIA announced a multiyear agreement and a USD 2,000.00 Million investment in Coherent for lasers and optical networking. |
Chairman and CEO | Corning Incorporated
"Customers are looking for the opportunity to move away from pluggables and toward co-packaged optics and near-package optics."
Weeks made this statement during an earnings-call discussion reported by SDxCentral, highlighting interest in optical technologies that can improve latency, power efficiency, reliability, and connection density.
Capital flows to lasers, engines and packaging. NVIDIA invested USD 2,000.00 Million in each of Lumentum and Coherent in March 2026, and Marvell absorbed Celestial AI to add optical interconnect capability. Based on research conducted by NMSC, we found that investors favour suppliers with funded capacity and customer commitments, because these two features convert a technology lead into predictable revenue across the forecast period.
Infrastructure spending centres on indium phosphide fabrication, silicon photonics wafer lines and advanced packaging. Lumentum plans a new U.S. fabrication facility and Coherent is expanding U.S. manufacturing, while TSMC integrates photonic and electrical dies with its stacking technology. We observed that test and burn in capacity for optical engines is equally scarce, and operators that finance it gain earlier access to qualified supply.
ESG screens focus on energy use. The International Energy Agency expects data centre demand near 945 TWh by 2030, and NVIDIA claims 3.5 times better power efficiency for its photonics switches. Lower energy per bit supports operator emissions targets, though lasers and wafer fabs add manufacturing impact. Our assessment indicates that investors will favour suppliers that publish verified power savings and responsible sourcing for indium and other materials.
Operators gain a segment level view of when optical engines, lasers and packaging become available at volume. The forecast by lane rate helps planners time the move from pluggable modules to integrated optics, and the regional analysis highlights supply risk. We found that early qualification planning protects capacity access, and the report quantifies the cost of delay for sites that face fixed power budgets.
Investors gain a reconciled forecast of USD 180.00 Million in 2025 and USD 6,240.00 Million by 2035, with clear segment and regional splits. The analysis separates revenue pools by component and application, so analysts can map exposure to engines, lasers or packaging. Restraint estimates and capacity commitments provide inputs for scenario models and for judging how quickly each supplier can convert design wins into recognized revenue.
Product teams gain a benchmark of lane rate transitions, laser power needs and integration choices. The competitive analysis shows which archetypes dominate and where open architectures remain, particularly in accelerator optical I/O. Our assessment indicates that vendors can use the segment forecasts to prioritise engine density, serviceability and foundry partnerships, and to size capacity ahead of the volume deployments suppliers expect later in the decade.
The outlook is one of rapid expansion from a small base. Revenue climbs from USD 520.00 Million in 2026 to USD 6,240.00 Million by 2035, a 31.8% CAGR, as 200G and 400G per lane designs reach volume and accelerator optical I/O matures. Our findings suggest that growth of the Co-Packaged Optics Market is back loaded, because qualification cycles and capacity builds delay the steepest ramp until the second half of the forecast period.
Suppliers should secure laser, engine and packaging capacity before volume orders arrive, and should tie that capacity to multiyear customer commitments. Switch vendors should publish reliability and serviceability evidence to reduce operator risk. Component makers should pursue engagement with accelerator designers, since open architectures reward early entrants. NMSC's analysis indicates that integrated control of the three layers is the most defensible position.
Attractiveness is high but selective. The USD 5,720.00 Million opportunity between 2026 and 2035 favours suppliers with funded capacity, named customers and qualified products. Investors should discount claims without shipment evidence, because the market is still early and revenue depends on a few buyers. We found that laser and packaging segments offer the strongest pricing power, while engine segments offer the largest absolute revenue.
Key shifts include the move from 100G to 200G and 400G lanes and the rise of accelerator optical I/O. Key risks include engine yield, scarce packaging slots, laser supply and the continued improvement of pluggable optics. Our assessment indicates that a delay in hyperscale qualification would push the steepest growth years later, while a supply shortfall would shift share toward vendors with secured capacity.
Three pathways drive growth. Scale out switching adds volume as 102.4 Tbps platforms ship, scale up interconnect adds a new buyer group, and regional capacity in North America and Asia-Pacific shortens lead times. Asia-Pacific grows at 35.2% CAGR and the scale up segment reaches USD 2,200.00 Million by 2035. During our market evaluation, we noticed that these pathways reinforce one another in the Co-Packaged Optics Market.
NVIDIA Corporation, Spectrum-X Photonics announcement (March 18, 2025)
investor.nvidia.comNVIDIA Corporation, Lumentum strategic partnership announcement (March 2, 2026)
investor.nvidia.comCoherent Corp., NVIDIA strategic partnership announcement (March 2, 2026)
coherent.comCoherent Corp., Form 8-K Exhibit 99.1 (March 2026)
sec.govBroadcom Inc., Tomahawk 6 – Davisson announcement (October 8, 2025)
news.broadcom.comMarvell Technology, Inc., completion of Celestial AI acquisition
marvell.comLumentum Holdings Inc., Form 8-K Exhibit 99.1, fiscal 2026 fourth quarter results
sec.govLumentum Holdings Inc., Annual Report to Shareholders, fiscal 2026
sec.govInternational Energy Agency, Energy and AI
iea.orgTSMC Research, Compact Universal Photonic Engine publication
research.tsmc.com
Mayurima Roy is Research Analyst at Next Move Strategy Consulting, where she has spent 4 years working across the firm's full industry coverage rather than a single fixed vertical. Her work centers on structured research, ongoing trend tracking, competitive assessment, and insight-led content development, translating complex market data into clear, decision-ready narratives that support informed client decision-making across diverse global industries, market sectors, and world regions every day.
Supradip Baul is an accomplished business consultant and strategist with over a decade of rich experience in market intelligence, strategy, technology, and business transformation. His work has included rigorous qualitative and quantitative analysis across multiple industries, helping clients shape investment decisions and long-term roadmaps. Earlier in his career, he was associated with Gartner, where he contributed to industry-leading reports and market share analyses. He has worked with leading global companies and holds an MBA with a dual specialization in Marketing and Finance.
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