(Yicai) April 28 -- Public funds in China continued to invest intensively in shares of companies from the optic communication industry last quarter amid the explosive growth of artificial intelligence models.

Public funds' holdings in the communication sector topped 13.1 percent as of March 31, rising for the fourth quarter in a row, according to data released by the funds at the end of each quarter. In comparison, the figure stood at only 2.7 percent at the end of the first quarter last year.

The high-speed transmission capacity of massive data is the key to determining the ceiling of AI computing power. Optical communication uses a laser as the information carrier and optical fiber as the transmission channel, with optical modules, chips, and components all centered around optical communication.

The trend of public funds "buying hardware and selling software" in the AI supply chain is essentially about seeking performance certainty within the chain.

Although public funds' holdings in the technology, media, and telecommunications sector reached a record high of 40 percent last quarter, there was a significant internal divergence. Holdings in the communications industry rose by 2 percentage point, while those in the electronics, computer, and media sectors dropped 1.6 percent, 0.6 percent, and 0.4 percent, respectively.

Zhongji Innolight, a core investment target among the optical module concept stocks, has become the top stock heavily held by public funds, while Eoptolink Technology and Dongshan Precision Manufacturing have made the top 10 stock holdings of some cross-style fund managers. Fund holdings in Zhongji accounted for nearly 12 percent of its tradable shares as of March 31, with over 1,100 funds including it in their heavy-holding lists.

The share price of many firms in the optical communication sector has surged this year. Zhongji [SHE: 300308] has soared about 45 percent since the end of last month, despite falling 3.6 percent to CNY826.01 (USD121.07) a share as of 2.05 p.m. in Shenzhen today, bringing its market capitalization to over CNY1 trillion (USD146.5 billion)

Eoptolink [SHE: 300502] and Yuanjie Semiconductor Technology [SHA: 688498] have both reached record highs, with the former dropping 0.7 percent to CNY534.40 today and the latter rising 1.8 percent to CNY1,444 (USD211.63) in Shanghai. Dingtong Precision Metal [SHA: 688668] has surged 78 percent since the start of this month, while Shijia Photons Technology [SHA: 688313] has jumped 60 percent.

Behind the funds' intensive investment is the clear high prosperity of the optical communication industry and the performance support of leading companies. Zhongji led the industry with net profit of CNY10.8 billion (USD1.6 billion) and revenue of CNY38.24 billion last year, up 109 percent and 60 percent, respectively, from the previous year. Eoptolink's net profit soared 236 percent to CNY9.5 billion, while its income surged 187 percent to CNY24.8 billion.

Demand for AI computing power is driving the continuous expansion of data centers, with cloud service providers' demand for graphics processing units also rising. The need for high-speed optical modules, including 800 gigabit per second and 1.6 terabit per second, will dominate the market over the next three years, while 3.2 Tbps optical modules will likely gradually gain momentum from 2028.

Demand for 800G and 1.6T optical modules will rapidly expand this year, with a combined market size expected to reach USD14.6 billion, taking up around 64 percent of the entire market, according to LightCounting.

Multiple institutions have released reports discussing crowded trades in the AI hardware sector, with many noting that although the degree of funds investing intensively has reached historic highs, considering the certainty and sustainability of industrial development, crowded trades have not yet reached an extreme level.

Crowded trades have surpassed those of Contemporary Amperex Technology in 2021, but remain lower than those of Kweichow Moutai and in the financial and real estate markets in 2007.

Editor: Martin Kadiev