Interchip Optical Interconnect Market Trends & Outlook

The global Interchip Optical Interconnect Market is poised for substantial growth, valued at USD 15.99 billion in 2024 and expected to reach USD 18.01 billion by the end of 2025, before expanding to USD 32.73 billion by 2030 at a compound annual growth rate (CAGR) of 12.7% from 2025 to 2030. This surge is propelled by the exponential increase in data demand, advancements in artificial intelligence (AI) and machine learning (ML), and the need for high-speed, low-latency, energy-efficient interconnects in advanced computing systems.

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Investments in next-generation data centers, high-performance computing (HPC), and 5G networks are key enablers, as optical interconnects outperform traditional electrical ones in bandwidth and power efficiency. Innovations in co-packaged optics (CPO), silicon photonics, and chiplet architectures are reshaping the landscape, while regulatory mandates on energy efficiency and optical standards in telecommunications ensure compliance and sustainability.

Silicon photonics is a transformative trend, shifting from research to mainstream adoption, with projections indicating that 44% of optical transceivers will incorporate it by 2028, up from 24% in 2022. This integration delivers higher link speeds and density, as demonstrated by Fudan University's multiplexer achieving 38 terabits per second (Tbps) on-chip bandwidth, with commercial applications anticipated in three to five years. For businesses, this underscores the urgency to invest in research and development (R&D), forge foundry partnerships like the AIM Photonics initiative, and pursue application-specific integrated circuit (ASIC)-silicon photonics (SiPh) co-integration. Early trials with complementary metal-oxide-semiconductor (CMOS)-compatible photonic integrated circuits (PICs) and electronic design automation (EDA) tools will provide a competitive edge as standardization accelerates.

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Co-packaged optics (CPO) is another pivotal trend, transitioning to commercial viability by late 2025, spearheaded by leaders like Taiwan Semiconductor Manufacturing Company (TSMC) and Nvidia. Early deployments show 30% to 50% power reductions, exemplified by Broadcom's Tomahawk-5 Ethernet switch, which operates at 51.2 Tbps with 70% less energy through integrated photonics. By minimizing electrical signal loss and parasitic effects inherent in pluggable optics, CPO supports compact, efficient interconnects vital for AI and HPC workloads. Hyperscalers, chipmakers, and switch vendors should prioritize prototyping to enable broad deployment by 2026-2027, positioning themselves as frontrunners in sustainable, high-efficiency infrastructure.

Optical interposers and advanced packaging are accelerating chiplet ecosystems, with disruptive innovations like Lightmatter's interposer slated for 2025 and chiplet for 2026, backed by USD 850 million in funding. POET Technologies highlights their potential for 800 gigabits per second (Gbps) to 1.6 Tbps links without overhauling system architectures. Academic advances in polymer waveguide interfaces have reached 10 Tbps per millimeter density, a leap from copper's 3 Tbps per millimeter, enabling photonic interconnect buses that surpass traditional traces. Semiconductor firms are advised to partner with optical interposer foundries, adopt photonics-ready chiplet designs in 2025 roadmaps, and target optical bus integration by 2026 to capitalize on this shift.

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Hyperscale data center expansion and AI/ML demand are primary growth drivers, necessitating high-speed optical links using vertical-cavity surface-emitting lasers (VCSELs) and silicon photonic engines for over 400 Gbps energy-efficient communication. The 5G rollout and edge computing further amplify needs, as millimeter-wave small cells and distributed processing demand high-bandwidth, low-latency backhaul that copper struggles to provide. Optical interconnects excel in rack-to-rack and board-to-board transfers, scaling for next-generation connectivity. However, integration challenges, such as photonics-CMOS alignment, hybrid materials, thermal sensitivity of components like VCSELs, and high capital for silicon photonics facilities, alongside absent standards, constrain adoption, particularly for smaller players.

Regionally, North America leads with its robust data center ecosystem, semiconductor prowess, and R&D hubs in the U.S. and Canada, fueled by hyperscalers and 5G partnerships. Europe benefits from HPC/AI investments and EU digital sovereignty efforts, with photonics leadership in Germany, France, the Netherlands, and the Nordics. Asia-Pacific exhibits the highest growth potential through AI/5G/semiconductor dominance, led by China's R&D giants like Huawei, Japan's electronics expertise, and South Korea's Samsung-driven innovations; emerging markets like India and Indonesia add momentum via digital initiatives. Latin America and the Middle East & Africa remain nascent, with Brazil, Mexico, UAE, and Saudi Arabia advancing cloud/AI infrastructure amid limited local production.

Key players like Intel, Broadcom, Nvidia, Ayar Labs, and Lightmatter drive competition through innovations such as Intel's June 2024 Optical Compute Interconnect (OCI) chiplet for 64x32 Gbps links, TSMC April 2024 Compact Universal Photonic Engine (COUPE) for 12.8 Tbps CPO, and Ayar Labs' December 2024 USD 155 million funding for TeraPHY chiplets.

Mergers, including Nokia's USD 2.3 billion Infinera acquisition in June 2024 and AMD's May 2025 Enosemi buyout, underscore consolidation for vertical integration. Investment opportunities abound in AI-driven hotspots like Silicon Valley, South Korea, and Japan, supported by U.S. CHIPS Act, EU Horizon Europe, and Asian semiconductor stimuli, with venture surges since 2023 signaling strong commercial potential