On February 18, the CPO (Co-packaged Optics) concept stocks experienced significant highs during trading hours, with many stocks in this category showing strong reboundsThis surge can be attributed to multiple driving forces, including advancements in artificial intelligence (AI). When examined over a longer time frame, CPO has established itself as a potential long-term growth sector characterized by a steady trajectory of gradual growth.

In the context of market performance, it appears that certain leading companies within the CPO niche have attracted substantial leverage capitalThis trend suggests that upcoming opportunities related to AI may concentrate within this corridor of the market. Reports indicate that several of these companies continue to grow within an upward channel and have seen increased investor interest.

Recently, the AI sector has shifted from a general increase to a more structured rally, yet the overall trends and opportunities within this field remain robustCertain specific areas, such as CPO, have become leaders in this market shift.

During the trading session on February 17, the CPO concept stocks saw a 3.1% increase, placing them sixth among over 260 sectorsSince mid-January, this category has cumulatively risen by 20%, achieving a new peak for 2023.

Out of 83 stocks categorized under the CPO concept, a remarkable 78 have shown price increases, with some stocks like Maxinlin witnessing gains exceeding 80% during this timeframe.

So, what exactly is CPO? Co-packaged optics (CPO) refers to the technique of assembling exchange chips and optical engines to create a consolidated chip and module design

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The growth of CPO is closely tied to the emergence of large AI models, as these technologies demand greater computing power, further stimulating advances in optical modules.

Several factors contribute to the recent strength of the CPO sector, both from longer-term avenues and more immediate influences.

From a long-term perspective, CPO benefits from the rapid development of AI, cloud computing, and big data, which drives consistent demand for high-speed and high-performance internet servicesAdditionally, CPO is among the foremost segments of the AI industry to realize performance metrics, supported by solid fundamental factors that boost stock prices in the secondary market.

In the short term, the prospects are largely propelled by industry-leading companiesNotably, rumors indicate that Nvidia is poised to unveil new CPO switch products at its GTC conference scheduled for March 2025, with volume production expected by August of that year, provided that everything goes according to plan.

The market potential for CPO is promising, with industry insights projecting that the market for co-packaged optical devices could surpass $1.2 billion by 2035. The compound annual growth rate from 2025 to 2035 is expected to hit 28.9%, indicating substantial investment opportunities ahead as the long-term growth trajectory remains favorable.

As CPO shares continue to climb, many stocks in this sector have attracted significant investment from leveraged funds, bolstering their upward trends.

Since mid-January, over half of compiled CPO stocks have received significant net purchases from leveraged funds, with 42 stocks seeing net purchases exceeding 10 million yuan

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Furthermore, 25 stocks recorded net inflows exceeding 50 million yuan, while 19 stocks exceeded 100 million yuan, and five stocks attracted net purchases surpassing 300 million yuan.

In the secondary market, many stocks that received considerable net purchases from leveraged funds notably surged in price.

For instance, Maxinlin, which specializes in core aerospace components and encompasses multiple concepts including computing power and CPO, has seen its price soar by 82% since mid-January, recently achieving an all-time high partly fueled by net purchases amounting to 152 million yuan by leveraged funds.

Maxinlin has previously stated that its 3um equipment is applicable to packaging for optical modules in the range of 400GHz to 800GHz, with several clients already testing the equipment, and some initiating orders for batches of productsLeading companies in China's optical communications sector are also slated to utilize this equipment for product testing.

Moreover, Maxinlin's hike in stock price has also been buoyed by additional positive market factorsAccording to its recent performance forecast for 2024, the company anticipates net profits to range between 40.18 million and 60.28 million yuan, indicating a staggering year-on-year growth of between 163.55% and 295.40%. The company has also teased the official launch of a model developed by its subsidiary DeepSeek.

Notably, well-known investors Zhao Jianping and Zhao Ji have also strategically positioned themselves in Maxinlin, with Zhao Jianping appearing among the top ten circulating shareholders according to the 2023 quarterly report, alongside Zhao Ji, who is often observed working in tandem.

However, in the first quarterly report of 2024, both investors made exits from the top ten circulating shareholders

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It remains uncertain whether this suggests total liquidation or partial divestmentFollowing these changes, Maxinlin's stock value underwent a deeper adjustment for almost six months before entering another bullish market.

Investors who engage with leveraged funds often display a high-risk appetite, and many stocks that have drawn significant attention from these funds show strong potential for explosive growthBesides Maxinlin, numerous other CPO concept stocks have captured the attention of leveraged funds, reflecting a broader trend. The list below showcases stocks that have received over 10 million yuan in leveraged fund investments since mid-January while still within a long-term uptrend.

The CPO landscape encompasses a comprehensive supply chain that traverses upstream and downstream sectors, creating numerous opportunities for individual stock investment.

From the CPO industry chain perspective, the upstream is primarily composed of manufacturers of micro-optical devices, semiconductor chip designers, and suppliers of materials (such as raw materials for CPO products, including silicon, optical components, and electronic components). The midstream consists of CPO product design and manufacturers, commonly known as module packaging manufacturers or equipment vendorsFinally, the downstream is comprised of optical system manufacturers, photonic device suppliers, system integrators, and end-users.

From a strategic standpoint, examining individual stocks within the CPO industry chain reveals that product upgrades, technological iterations, and expanding market demands have created more alpha opportunities for investors.

Recently, a number of firms have heavily invested in the CPO supply chain, buoyed by various factors, particularly the AI surge, leading to impressive stock price rises.

For example, Jingwang Electronics disclosed during an institutional survey in January that it possesses considerable technological resources in CPO

The progression of relevant products is anticipated to depend significantly on market solutions and client demand, with the ability to mass-produce 10G/25G/100G/200G/400G/800G optical modules, and they have successfully piloted 1.6T optical module products.

Jingwang's primary business lies in printed circuit board (PCB) manufacturing, encompassing various aspects like CPO, AI PCs, and autonomous driving technologyAfter experiencing a period of adjustment, Jingwang's stock has bounced back significantly, increasing nearly 30% since February 6, reaching historical highs following a surge of nearly 10% on February 18, overtaking its previous record since its public listing in January 2017.

In the backdrop of the performance window, endowed by factors such as AI and computing power, CPO concept stocks have shown notable structural performance increases overall.

For instance, Taicheng Optics projects a net profit of between 23 million and 27.5 million yuan in 2024, representing an increase of 48.30% to 77.32% year-on-yearThe company elaborated that its growth can be attributed to the relentless advancement of AI technologies and a rapid increase in computing demand, driving the development of data centers that have contributed to a steady rise in demand for optical device productsWith deep technological foundations in optical communications, the company expects to achieve significant revenue growth in tandem with its strategic positioning.

Several other CPO concept stocks are also anticipating substantial increases in their 2024 annual earnings.

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