A clear beneficiary of global AI infrastructure capex; remains our top pick in 2026

PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE MORE REPORTS FROM BLOOMBERG: RESP CMBR <GO> OR http://www.cmbi.com.hk 1 MN 15 Dec 2025 CMB International Global Markets | Equity Research | Company Update Innolight (300308 CH) Innolight (300308 CH) - A clear beneficiary of global AI infrastructure capex; remains our top pick in 2026 A clear beneficiary of global AI infrastructure capex; remains our top pick in 2026 2025 has proven a standout year for optical transceiver suppliers with high AI exposure, with domestic industry leader Innolight delivering stellar 9M25 results: Revenue and net profit soared 44%/90% YoY, while 3Q25 gross margin expanded 9ppt to 43% from a year ago. Strong financials fueled a share price rally, with Innolight’s stock surging 380%+ YTD as of Dec 11. Looking ahead into 2026, we double down on AI as one of our key themes, underpinned by an unabated AI infrastructure investment cycle and a sustained mix shift to higher-value solutions (i.e., 1.6T). We reiterate our BUY rating for Innolight and lift our TP to RMB707, driven by an upgraded hyperscaler capex outlook.  Capex outlook: upward revisions in consensus continue. The US Big Four hyperscalers (Google, Microsoft, Meta, Amazon) ramped capex aggressively: US$230bn in 2024 (+55% YoY), US$259bn in 9M25 (+65% YoY), with 2025 full-year capex projected by Bloomberg consensus to reach US$367bn (+59% YoY). Bloomberg consensus points to another 35% YoY growth in 2026, pushing capex to US$495bn. Despite a modest 14% consensus growth for 2027 and lingering AI bubble debates, we remain bullish that AI infrastructure investment will continue to grow, with upward revision potentials: 2025 Big Four capex growth consensus was 33% in Jan and revised to 59% in Nov. Historically, post-earnings quarterly adjustments have consistently lifted consensus estimates as spending visibility improves.  Supply chain capacity expansion underway. Mgmt. previously flagged tight supply of key optical components such as EMLs (electro-absorption modulated lasers). Although we expect the tightness to continue into 2026, we believe Innolight is well prepared for the challenges, given capacity expansions of EMLs and rising SiPho adoptions: Lumentum to increase unit output by 40% over the coming quarters, despite already being sold out through long-term agreements with downstream leaders.  The US allowed the exports of Nvidia’s H200 to China on Dec 8: A catalyst for next AI compute upcycle in China. Per Reuters, the H200 delivers ~6x the performance as H20, lifting the compute ceiling for Chinese hyperscalers. This should translate into structurally higher requirements for networking components, with Innolight and other leading domestic AI infra vendors standing out as key downstream beneficiaries of the higher compute baseline.  Reiterate BUY on Innolight, with TP adjusted to RMB707, based on the same 28x 2026E P/E, at a premium to historical 5-year avg (27x) gi