In the midst of the super-cycle of AI computing infrastructure, Zhongji Innolight Co.,Ltd. (SZSE: 300308) has continued to report remarkable growth. Surprisingly, despite a surge in company earnings and the support of share repurchases, the company's stock price has been on a downward trend. Why is the stock price declining when the performance is improving? With multiple competing technology paths including silicon photonics, LPO, and CPO, has the current valuation already priced in the longer-term high growth? Has the company's valuation been overextended? And has the margin for error in fulfilling related expectations been diminished?

Despite the support of earnings and share buybacks, the stock price of Zhongji Innolight has fallen rather than risen. As of September 2nd, the stock price stood at 822.4 yuan per share, and the company's market value dropped below the trillion-yuan mark. Against the backdrop of the grand AI computing infrastructure cycle, Zhongji Innolight continues to experience high growth. Its performance in the first half of this year has shown explosive expansion.

Stock Price Falls Despite Buybacks and Strong Earnings Growth

The interim financial report for 2026 shows that Zhongji Innolight achieved operating revenue of 41.778 billion yuan, a year-on-year increase of 182.49%; net profit attributable to shareholders of listed companies was 13.651 billion yuan, up 241.7% year-on-year. The gross margin for the first half was 46.25%, an increase of 17.59 percentage points, up 6.92 percentage points year-on-year. Breaking it down by quarter, in the second quarter of this year, Zhongji Innolight realized revenue of 22.281 billion yuan, up 174.57% year-on-year and 14.29% quarter-on-quarter; net profit attributable to the parent was 7.917 billion yuan, up 228.19% year-on-year and 38.03% quarter-on-quarter. The company stated that, benefiting from robust AI investments from major customers in computing infrastructure, shipments of its 800G and 1.6T products grew rapidly and their proportion continually increased. With optimizing product solutions and improving operational efficiency, both revenue and net profit grew significantly compared with the same period last year.

Overseas revenue of Zhongji Innolight continued to gain momentum. During the reporting period, demand for orders from overseas customers was strong. High-speed optical module products such as 800G and 1.6T continued to see substantial growth. The company continued to deliver high-speed optical modules in bulk to most leading global cloud service providers and AI computing solution providers, maintaining its position as a key supplier to multiple major clients. For the six months ended June 30, 2026, overseas business revenue was approximately RMB 39,614.7 million, an increase of 209.9% from RMB 12,781.4 million for the six months ended June 30, 2025. This was mainly due to (1) continuous investment in computing power by overseas cloud service providers, leading to a rapid increase in demand for high-end optical modules; (2) maintaining a high share among key customers via high-quality and efficient delivery capabilities; and (3) further expanding downstream customer coverage.

It's worth noting that the company's order visibility is high, and future earnings expectations appear favorable. In investor conference notes, Zhongji Innolight indicated that, driven by strong cloud provider investments in infrastructure, some customers have raised their capital expenditure guidance for 2026 and even 2027. Simultaneously, the configuration specifications for computing chips have been further upgraded. Optical interconnect products, being central to AI cluster networks, have grown in importance. As AI network scales expand, the proportion of optical modules corresponding to xPU rises. Major customers already provided guidance and orders for 2027. Compared to 2026, order demand for 1.6T and 800G in 2027 is still expected to grow rapidly. New products such as 2.4T, NPO, and XPO will be suitable for scale-out and scale-up applications. The company is actively developing or sampling per customized requirements from major clients. These new products are expected to enter mass production in the second half of 2027, with larger scale shipments potentially commencing in 2028. The company is also actively building new production capacity to prepare for optical chips, electrical chips, PCB, and other core materials, ensuring readiness for larger-scale ramping in 2027.

Alongside high earnings growth, the company promptly announced a buyback plan. The company plans to repurchase its RMB ordinary shares (A shares) using its own funds or self-raised funds, with total repurchase funds of no less than RMB 4 billion and no more than RMB 8 billion. The price ceiling for the repurchase is RMB 1,200 yuan per share (inclusive). All repurchased shares will be used for an equity incentive plan or an employee stock ownership plan. Based on the maximum repurchase price and the fund range, the estimated number of repurchased shares could be between 3.333 million and 6.6667 million, representing approximately 0.28% to 0.57% of the company's current issued total shares. On September 1, 2026, the company repurchased 374,100 shares through its dedicated securities account via centralized bidding, accounting for 0.0318% of total share capital. The transaction price range was between RMB 838.16 and RMB 870.00 per share, for a total payment of RMB 318 million.

Yet, with growing earnings and buybacks, the stock price failed to reach new highs and instead trended downward. This raises the question: why does a stronger performance not yield the expected stock price reaction? Has the valuation been overestimated? Could expectations have been prematurely consumed?

Is the Trillion-Yuan Innolight Overpriced?

Wind data shows that Zhongji Innolight currently carries a market value of 968.7 billion yuan. For 2026 to 2028, market consensus forecasts project its revenue at 110.2 billion yuan, 216.6 billion yuan, and 310.4 billion yuan, respectively; for the same period, net profit attributable to equity holders is projected at 35.4 billion yuan, 70.8 billion yuan, and 102.2 billion yuan, respectively. Using these consensus forecast figures, a rough discounted cash flow model can estimate the potential profit space the market currently assigns to the company. I used a 10% discount rate, arriving at a potential profit scale of roughly one hundred billion yuan. In other words, does this imply the current market pricing already reflects the expectations for 2028? Has the estimated hundred-billion-scale potential profit been exhausted? If we reverse-engineer this with a net margin of 35%, the company would need to maintain revenue at around 300 billion yuan. According to LightCounting, the global optical interconnect market reached $24.8 billion in 2025 and is expected to grow to $111 billion by 2030. At an exchange rate of approximately 6.73 yuan to 1 US dollar, this equates to an addressable market of about 747 billion yuan in RMB terms. In other words, Zhongji Innolight may need to secure a market share of approximately 40% to absorb its current valuation. According to CIC data, Zhongji Innolight has been the world's largest optical interconnect solution provider by revenue for five consecutive years since 2021, holding a 21.2% share of the overall optical interconnect solutions market in 2025. In the high-speed data communication optical interconnect solutions market, the company held a 28.1% market share in 2025. Additionally, per LightCounting data, Zhongji Innolight's global optical module market share was approximately 23.4% in 2025, ranking first worldwide for three consecutive years.

In terms of technological evolution, AI-driven data center network upgrades are significantly accelerating the pace of industry iteration. The industry must rapidly advance migration to 800G, 1.6T, and even future 3.2T high-speed architectures to meet higher density and greater throughput interconnect needs. At the same time, emerging technologies like silicon photonics integration, thin-film lithium niobate, and co-packaged optics (CPO) are being developed to address power consumption, heat dissipation, cost, and reliability requirements under high-speed transmission. Industry development is no longer limited to single-product speed upgrades, but is gradually evolving into a comprehensive development that spans chip, packaging, module design, system adaptation, and mass production capabilities.

Currently, Zhongji Innolight is betting on silicon photonics, while Eoptolink focuses on linear-drive pluggable optics (LPO), and TFC Communication is positioning itself in the CPO optical engine space. Industry insiders suggest that as data rates continue to climb from 1.6T/3.2T and AI networks expand from scale-out to scale-up, the product forms, value drivers, and profit pool positions within optical interconnects will shift. Pluggable modules are likely to remain the revenue and profit cornerstone around 2026-2028, NPO is more likely to be the transition solution in the medium term, and CPO may be a more seriously priced long-term architectural variable after 2028.

It's important to emphasize that the above valuation estimates rely on numerous assumptions and are only rough approximations. It cannot be definitively concluded whether Zhongji Innolight is overvalued or undervalued; perhaps the market has already cast its vote.