Co-Packaged Optics Market Size & Outlook, 2026-2034

Co-Packaged Optics Market Overview

The global co-packaged optics market size was valued at USD 98.42 million in 2025 and is estimated to reach USD 1,160.12 million by 2034, growing at a CAGR of 31.67% during the forecast period (2026–2034). The market is driven by rising data traffic from cloud computing, video streaming, and 5G networks, coupled with growing demand for energy-efficient, high-bandwidth interconnects in hyperscale data centers and AI workloads, fueling the adoption of co-packaged optics solutions globally.

Key Market Trends & Insights

• Asia-Pacific held the largest market share, over 40% of the global market.
• North America is the fastest-growing region, with a CAGR of 37.87%.
• By Data Rate, the 3.2T segment held the highest market share of over 35%.
• By Component, the Laser sources segment is expected to witness the fastest CAGR of 21%.
• By End-Use Application, the High-performance computing (HPC) and AI/ML clusters segment is expected to witness the fastest CAGR of 18 %.
• China’s co-packaged optics market was valued at USD 12.18 million in 2024 and reached USD 17.72 million in 2025.

Graph: China’s Market Revenue Forecast (2023 – 2034)

Source: Straits Research

Market Size & Forecast

• 2025 Market Size: USD 98.42 million
• 2034 Projected Market Size: USD 1,160.12 million
• CAGR (2026-2034): 67%
• Dominating Region: Asia-Pacific
• Fastest-Growing Region: North America

Co-packaged optics (CPO) integrates optical components directly with switch ASICs, reducing electrical interconnect lengths to improve speed and energy efficiency. It is primarily used in hyperscale data centers, high-performance computing, AI clusters, and telecom networks. CPO enables ultra-high bandwidth, low-latency communication, minimizes heat generation, and supports scalable architectures for cloud services, AI training, and 5G backhaul, making it essential for next-generation networking and computing infrastructure.

The market is driven by demand for compact, energy-efficient interconnects, growing investments in edge computing, and the need for scalable optical solutions in enterprise networks. Opportunities include expansion in emerging regions, partnerships between semiconductor and optical component manufacturers, and adoption in smart cities, AI-driven networks, and IoT infrastructure, enabling faster, low-latency connectivity across applications.

Latest Market Trends

Growing Integration of Optical Interconnects within Data Centers

The growing integration of optical interconnects within data centers is transforming how data is transmitted, enabling faster speeds and lower power consumption. As workloads like AI, cloud computing, and 5G expand, traditional electrical interconnects face bandwidth and heat limitations, making co-packaged optics a preferred solution for hyperscale operators.

Moreover, the market is witnessing a surge in the adoption of silicon photonics to achieve compact, scalable, and energy-efficient CPO designs. Collaboration among chipmakers, equipment vendors, and optical component manufacturers is increasing to establish open standards, ensuring interoperability and accelerating commercialization across 800G and 1.6T architectures for next-generation computing.

Surge in AI/ML Cluster Bandwidth Demand

The surge in bandwidth demand from AI and ML clusters is reshaping data center infrastructure. These high-performance workloads require massive data throughput and ultra-low latency, pushing conventional electrical interconnects to their limits. Co-packaged optics offer a scalable and energy-efficient solution to meet the needs of AI-driven environments.

As per Straits Research, the increasing complexity of AI models and parallel processing systems is accelerating the shift toward optical interconnects integrated directly with switch ASICs. This trend enhances bandwidth density, reduces power usage, and supports rapid data transfer essential for training and deploying next-generation intelligent applications.

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Co-Packaged Optics Market Drivers

Surge in Data Traffic from Cloud Computing, Video Streaming, and 5G Networks

The surge in data traffic driven by cloud computing, video streaming, and 5G networks is a major catalyst for the co-packaged optics market. As data volumes expand, traditional electrical interconnects struggle to support the growing bandwidth and power efficiency needs of hyperscale data centers.

• For instance, according to the Quarterly Mobile Network Data Traffic Update, in 2025, monthly global mobile network data traffic reached approximately 180 exabytes, rising 19% year-on-year, largely fueled by video streaming and 5G growth.
• Moreover, in India, the average 5G user consumes about 40 GB per month, with 5G traffic expected to exceed 4G by 2026.

This exponential increase in data usage underscores the growing need for high-speed, energy-efficient optical interconnects enabled by CPO technology.

Market Restraints

High Initial Cost and Design Complexity of Integrating Optics with Switch ASICs

The high initial cost and design complexity of integrating optics with switch ASICs pose significant challenges to the widespread adoption of co-packaged optics. Developing and manufacturing these systems requires advanced packaging technologies, precise thermal management, and alignment processes, all of which increase production expenses.

Moreover, the intricate design demands specialized expertise and longer development cycles, limiting scalability for smaller players. These factors slow commercialization and make it difficult for data center operators to justify large-scale investments despite the long-term performance and energy benefits CPO solutions offer.

Market Opportunity

Development of Next-gen Optical Packaging Techniques

The development of next-generation optical packaging techniques presents significant opportunities for the co-packaged optics market. As data centers increasingly adopt AI and high-performance computing workloads, demand for scalable, high-density, and energy-efficient interconnects grows.

• For instance, in September 2025, GlobalFoundries and Corning announced a collaboration to develop detachable fiber connector solutions based on glass-waveguide technology. These innovations aim to enhance co-packaged optics by enabling efficient optical connectivity, improving bandwidth density, and reducing power consumption.

Such advancements pave the way for broader adoption of CPO solutions across hyperscale and enterprise data centers worldwide.

Regional Analysis

The Asia-Pacific co-packaged optics market is dominant with a market share of over 40%, driven by rapid digital infrastructure expansion, 5G rollouts, and growing data center investments. Asia-Pacific leads the co-packaged optics (CPO) market due to its strong semiconductor ecosystem, increasing hyperscale demand, and advancements in integrated photonics. As per Straits Research, regional manufacturers and research institutes are collaborating to develop energy-efficient optical interconnects that reduce latency and power consumption. The ongoing shift toward AI and high-performance computing continues to strengthen the region’s leadership in CPO deployment and innovation.

• China’s market is led by companies such as Huawei, InnoLight, and Accelink, which are developing next-generation CPO modules for data centers and AI clusters. These firms focus on integrating silicon photonics with electrical ICs to enhance bandwidth density and minimize signal loss. Growing government support for local semiconductor production and R&D in photonic integration further boosts China’s leadership in the regional CPO landscape.
• India’s market is growing as companies like Sterlite Technologies, Tejas Networks, and Tata Elxsi invest in optical communication R&D and advanced packaging solutions. These firms are working on low-power interconnects for high-speed computing systems and sustainable data centers. Government initiatives promoting semiconductor fabrication and digital infrastructure are helping India emerge as a competitive player.

North America Market Insights

North America’s co-packaged optics market is the fastest growing, with a CAGR of 37.87%, propelled by hyperscale data center expansion, cloud adoption, and strong participation from semiconductor and networking giants. North America’s leadership in AI workloads and 800G/1.6T switch technologies fuels the need for co-packaged optics to improve energy efficiency and bandwidth scalability. Moreover, the region benefits from extensive R&D investments, pilot deployments in data centers, and strategic alliances between optical engine developers and chip manufacturers aiming for next-generation computing architectures.

• The U.S. market is led by companies such as Intel, Broadcom, and NVIDIA, which are actively developing CPO-based switch architectures for AI-driven data centers. These firms focus on improving interconnect performance while reducing thermal losses and power usage. Ongoing collaborations with hyperscale cloud providers and photonics startups are accelerating commercialization and large-scale deployment across major technology hubs.
• Canada’s market is gaining traction with firms like Ranovus, Ciena, and POET Technologies pioneering photonic chiplet integration and optical engine design. These companies are working on scalable, low-cost CPO solutions tailored for AI computing and telecom networks. Strategic funding from innovation programs and partnerships with North American data center operators are fostering domestic R&D and manufacturing capabilities.

Source: Straits Research

Europe Market Insights

Europe’s co-packaged optics market is expanding steadily, supported by robust investments in 5G infrastructure, green data centers, and digital transformation across industries. The region’s emphasis on energy-efficient computing and carbon-neutral networking drives the adoption of CPO solutions. Moreover, collaborative research under EU-backed programs aims to integrate optical engines with next-gen chip architectures to reduce latency and operational costs. The rise of edge computing and quantum communication initiatives is also reinforcing Europe’s presence in the global CPO landscape.

• Germany’s market is growing through strong collaborations between semiconductor firms, photonics startups, and academic research centers. Companies like Infineon and ADVA Optical Networking are focusing on developing compact, thermally optimized CPO modules for high-performance systems, while government-backed digital innovation programs continue to fuel R&D.

Latin America Market Trends

The Latin America co-packaged optics market is at a nascent but promising stage, driven by the rapid rise in data traffic, cloud service adoption, and modernization of telecom networks. Countries in the region are witnessing increasing participation from global technology firms and local integrators in establishing regional data centers equipped with high-speed optical interconnects. As per Straits Research, strategic alliances with North American vendors are accelerating training, R&D, and localized manufacturing capabilities, making the region an emerging hub for digital infrastructure innovation.

• Brazil’s market is leading the regional market, with companies collaborating with global photonics leaders to integrate advanced optical modules into new data center projects. Growing demand for cloud computing, edge applications, and smart city solutions is prompting investments in high-bandwidth networking, driving the adoption of CPO systems to improve efficiency and scalability.

The Middle East and Africa Market Trends

The Middle East and Africa co-packaged optics market is gradually expanding, supported by large-scale investments in hyperscale data centers, 5G rollouts, and AI-driven digital transformation. Governments across the region are prioritizing next-gen telecom infrastructure and fiber connectivity, which creates strong opportunities for CPO deployment. Moreover, strategic collaborations between local telecom giants and global semiconductor players are fostering knowledge transfer and pilot-scale production of optical modules suited for high-temperature environments and long-distance communication.

• Saudi Arabia’s market is developing rapidly under the Vision 2030 initiative, with projects focused on building energy-efficient data centers and smart connectivity ecosystems. Collaborations with international optical component manufacturers are helping to localize production and introduce CPO solutions tailored for high-performance and low-latency applications.

Data Rate Insights

The 3.2T segment dominates the global co-packaged optics market with over 35% share, driven by its strong adoption across hyperscale and enterprise data centers. Its ability to handle massive data throughput while maintaining energy efficiency supports next-generation networking needs. As AI workloads intensify, 3.2T modules are becoming the preferred choice for balancing cost, speed, and power efficiency across large-scale data transmission networks.

The 6.4T and above segment is the fastest-growing, registering a remarkable CAGR of 38.48%. This growth is propelled by the exponential rise in AI/ML workloads and the need for ultra-high-speed interconnects in next-gen computing systems. These modules offer unparalleled bandwidth density and scalability, enabling seamless data handling for advanced HPC clusters and AI-driven cloud infrastructures that demand exceptional optical performance.

Component Insights

Optical engines lead the component segment with a commanding 45% market share, acting as the core element in co-packaged designs. Their ability to integrate photonic and electronic functions delivers superior signal integrity and low-latency communication. Growing demand from large-scale cloud and AI networks has strengthened their role in enabling compact, high-performance optical interconnect architectures essential for data-intensive environments.

Laser sources are the fastest-growing component segment, advancing at a CAGR of 35.21%. The surge stems from the rising need for power-efficient and thermally stable lasers in optical interconnects. Continuous innovation in silicon photonics and external laser architectures enhances transmission quality and energy optimization, making this segment a cornerstone in advancing high-bandwidth and sustainable optical communication systems worldwide.

Source: Straits Research

End-Use Application Insights

Hyperscale cloud data centers dominate the end-use segment with over 50% market share. These facilities rely heavily on high-speed, energy-efficient optical interconnects to manage ever-increasing data loads. Co-packaged optics significantly enhance scalability and bandwidth utilization, helping cloud providers like AWS, Microsoft, and Google achieve higher computing density while reducing power and cooling requirements across their global infrastructure.

High-performance computing (HPC) and AI/ML clusters are the fastest-growing end-use applications, registering an impressive CAGR of 39.18%. The increasing complexity of machine learning models and simulation workloads drives the demand for faster, high-bandwidth optical connections. Co-packaged optics deliver the low latency and throughput needed to accelerate AI training and data-intensive processing, making them indispensable to next-generation compute ecosystems.

Competitive Landscape

Leading companies are focusing on developing high-speed, energy-efficient optical interconnect solutions to meet the growing demands of AI, cloud computing, and 5G infrastructure. Key areas of innovation include integrating optical components directly with switch ASICs, enhancing bandwidth density, and reducing power consumption. Collaborations between semiconductor manufacturers, optical component suppliers, and data center operators are accelerating the commercialization of CPO technologies.

Intel Corporation

Intel Corporation was founded in 1968 in Mountain View, California, USA by Robert Noyce and Gordon Moore. Initially focused on semiconductor memory, the company became a global leader in microprocessors and integrated circuits. Intel drives innovation in data center solutions, AI, and co-packaged optics, enabling high-speed computing and energy-efficient interconnects for modern networking and hyperscale applications.

• In October 2025, Intel unveiled its upcoming data center GPU, Crescent Island, optimized for AI inference workloads. Featuring the new Xe3P architecture and 160GB of LPDDR5X memory, Crescent Island aims to provide energy-efficient performance for cloud and enterprise applications. Product sampling is expected to begin in the second half of 2026.

List of key players in Co-Packaged Optics Market

1. Broadcom Inc.
2. Intel Corporation
3. NVIDIA Corporation
4. Cisco Systems, Inc.
5. IBM Corporation
6. Ayar Labs Inc.
7. Ranovus Inc.
8. Marvell Technology, Inc.
9. Molex, LLC
10. TE Connectivity Ltd.
11. Coherent Corp.
12. Corning Incorporated
13. Furukawa Electric Co., Ltd.
14. POET Technologies Inc.
15. Hisense Broadband Multimedia Technologies Co., Ltd.
16. Kyocera Corporation
17. Sumitomo Electric Industries, Ltd.
18. SENKO Advanced Components, Inc.
19. Applied Optoelectronics, Inc. (AOI)
20. AMD (Advanced Micro Devices)

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Strategic Initiatives

• August 2025 - TSMC unveiled its A14 logic process technology at its 31st Technology Symposium, marking a significant advancement in AI infrastructure. The A14 process offers up to 15% faster speeds at the same power or a 30% power reduction at the same speed, along with over 20% increased logic density. Production is slated to commence in 2028.
• May 2025 - Broadcom Inc. announced the launch of its third-generation 200G/lane co-packaged optics (CPO) technology, aiming to enhance AI infrastructure with high-speed optical interconnects. This advancement follows the success of its second-generation 100G/lane CPO products, demonstrating significant improvements in manufacturing processes and ecosystem partnerships.
• April 2025 - ASE Technology Holding unveiled a co-packaged optics (CPO) device designed to enhance energy efficiency for AI applications. This innovation integrates multiple optical engines directly onto a substrate, achieving power consumption below 5 picojoules per bit and significantly increasing bandwidth.