Morgan Stanley anticipates a small scale-out adoption of optical networking next year, with co-packaged optics (CPO) seeing low single-digit adoption in 2028 before scaling significantly in 2029 with NVIDIA's Feynman. The firm's $73 billion TAM projection is driven by CapEx data points doubling expectations and AI cluster sizes growing from hundreds to thousands of GPUs across generations. Lumentum is positioned as the primary beneficiary in CPO scale-out due to its existing customer base, while Coherent and Corning also see incremental opportunities.
AI cluster growth is driving a 4x increase in networking TAM, shifting from copper to optical solutions, with CPO adoption accelerating by 2029.