Citi strategists believe NPO has now displaced CPO as the preferred near-term trading narrative, while lasers and fiber optics are increasingly being framed as the "next HBM," with supply tightness expectations fueling a new valuation story for related assets.

According to desk chatter, on September 8, Citi's Atif Malik team published a research report capturing key takeaways from interviews with Lightmatter CEO Nicholas Harris and CFO Simona Jankowski during Citi's global TMT conference.

Executives from photonic interconnect startup Lightmatter indicated that NPO (Near-Packaged Optics) is expected to enter the market in 2027, with broad adoption following in 2028. Meanwhile, the timeline for CPO (Co-Packaged Optics) deployment at scale remains unchanged at 2028-2029.

Management also characterized lasers and fiber optics as the "next HBM," suggesting that tight supply conditions will support a scarcity premium for these assets.

NPO Supersedes CPO as the Dominant Near-Term Trading Theme

Per Citi Research, ahead of the 2026 OFC optical fiber communication conference, market consensus had anticipated CPO would be the first to scale between 2027 and early 2028. However, following the expo, investor focus has clearly pivoted toward NPO.

Lightmatter management stated that NPO platforms will begin appearing in 2027 and reach high-volume, widespread deployment by 2028. The timeline for CPO in scale-up scenarios remains anchored in the 2028-2029 window.

The establishment of the OCI industry standard is viewed as a critical catalyst accelerating current design activity, given that prior architectural uncertainty had suppressed customer investment.

Lightmatter anchors its economic rationale in cost savings achieved through BiDi (Bidirectional) fiber technology. Management's goal is to deliver a significant reduction in per-gigabit-per-second unit costs relative to existing pluggable transceivers, which serve as a benchmark at approximately $0.50/Gbps.

Its Passage L20 NPO engine delivers 6.4 Tbps of bandwidth, leveraging BiDi technology where a single fiber carries both transmit and receive signals, eliminating the need for separate fiber pairs.

Management noted this approach cuts fiber usage in half. At data center scale, management quantifies these savings as roughly $1.6 billion in network cost reductions per gigawatt.

In this context, management framed lasers and fiber optics as the "next HBM," with their scarce supply attributes now drawing increasing market attention.

CPO's Bottleneck Lies in Test Infrastructure

While external observers often attribute CPO's slow progress to technological immaturity, management clarified that the core constraint on CPO scaling is test capacity, not the technology itself.

Current CPO switch production stands at only a few thousand to roughly 10,000 units annually, whereas management estimates industry demand requires capacity approximately 100 times greater than current levels. Wafer-level test equipment suppliers remain critically scarce, suggesting the testing segment may harbor underestimated investment opportunities.

On industry standards, Lightmatter participates in the Open Compute Project's (OCP) silicon photonics initiative, aimed at unifying system-level design specifications to avoid redundant engineering efforts across the industry at both system and rack levels.

Management noted the collaboration has grown from an initial nine partners to approximately 19, and has published a joint specification document exceeding 300 pages, positioning it similarly to Nvidia's reference design manual.

Meanwhile, Lightmatter partnered with Nvidia on NVLink Fusion in June 2026.

Management explained that NVLink Fusion was previously constrained by copper cabling, limiting it to short-reach, in-rack transmission. The introduction of optical interconnect removes this physical boundary, extending the scale-up domain beyond single-rack copper coverage. Management cited over 1 million hours of error-free data transmission as evidence of technical readiness.

Laser Strategy Shifts Toward Integrated "Super-Scale" Photonic Devices

On the laser technology front, management assesses that single-device laser power has approached its physical limit, approximately 400mW with a ceiling around 500mW, meaning further bandwidth increases require a greater number of lasers.

Lightmatter's solution involves laser arrays based on GaAs materials fabricated on 300mm CMOS wafers, with 128 lasers integrated per chip. The latest product achieves 16 Tbps per module, with multiple form factors including OSFP currently in development.

Management positions its photonic connector as a uniquely available technology in the market, claiming it eliminates shoreline constraints on laser placement, delivers roughly 10 times the bandwidth density of alternatives, and noting no other company currently offers comparable technology.

As NPO and CPO design activity accelerates, customer pull for connector designs is simultaneously increasing.

At the modulator architecture level, the OCI MSA has formally established microring modulators as the industry default, taking precedence over electro-absorption modulators.

Management stated Lightmatter's thermal control system maintains microring modulator stability under extreme gradients of 2,000 degrees Celsius per second, even in stacked-package configurations with high-power, advanced-node accelerators.