Zacks Small Cap Analysis – POET Emerges as a Pure Play in AI {Hardware} as Its Clients All Serve That Market – Nexus Vista

By Lisa Thompson



Regardless of not beginning that manner, POET (NASDAQ:POET) has change into a pure play in AI {hardware} as nearly each single considered one of its clients is promoting to knowledge facilities for AI or is manufacturing AI chips and {hardware}. Based mostly on present clients we count on nearly all of its revenues in 2025 to come back from three clients: Foxconn, Luxshare, and Celestial AI, and all three of them are chasing the AI market. Whereas the corporate could not announce contracts or buy orders as a consequence of clients requesting secrecy, all of them could contribute greater than 10% of reported revenues forcing the corporate to disclose their names in filings. Luxshare is furthest forward with one 800G product already designed and 5 extra merchandise within the works. Foxconn began on a design just lately and may obtain remaining samples six months from now, making it late 2024 or early 2025 with product shipments within the second half of 2025. POET has accomplished its design for Celestial AI. We count on POET to ship a couple of thousand of its mild supply gadgets for area testing in 2025. A fourth buyer, Adtran has already introduced its pluggable merchandise and may begin shopping for from POET in quantity in 2025. Whereas not directed at AI per se, Adtran’s optical modules are distinctive and will solely have been developed and produced utilizing POET’s small optical engines. This presages POET’s seemingly optical module technique, which might be to supply distinctive modules for area of interest markets avoiding direct competitors with its optical engine clients.

these 4 clients and considering lead occasions for sampling and qualification, POET expects manufacturing income to start in Q2 2025, most must be on the finish of 2025 and the ramp must be steep. In response to LightCounting, the optical transceiver marketplace for 800G and 1.6T is rising 33% a yr from $2.5 billion this yr to $10.5 billion by 2029. As a consequence of its superior know-how and restricted competitors within the built-in gadget house, POET hopes to seize a big share of these transceivers. For instance, POET believes that the present suppliers to Nvidia for 800G embrace solely InnoLight, E-OptoLink, and presumably Coherent. They use typical, much less totally built-in know-how platforms that require energetic alignments, use extra energy, and are much less environment friendly. POET expects that its clients will have the ability to take market share from these three suppliers over time.

The Market is Not Recognizing The Significance of the Foxconn Deal

POET’s greatest and most up-to-date information is its take care of Foxconn Interconnect Expertise (FIT), a subsidiary of Foxconn. FIT plans to be a giant participant in knowledge middle AI and introduced a collaboration with MediaTek on system integration for AI networks. The Taiwanese firm is designing merchandise with elements sourced utterly exterior China and POET matches that want. The marketplace for 800G single-mode transceivers is over 10 million models a yr, and Foxconn hopes to take significant market share. POET has been speaking to FIT for the previous six months and people talks lastly resulted in a deal after OFC. FIT has agreed to make use of POET’s optical engines for its personal 800G and 1.6T pluggable optical transceiver modules because it has a possibility to promote them to a big purchaser who’s a present buyer. On account of this chance, it has accelerated plans to convey merchandise to market. FIT needs engines as quickly as potential, and POET intends to ship samples for testing within the subsequent few months for each transmit and obtain engines. 800G is quickly taking off and POET’s opponents are few and a few haven’t even demonstrated a path to 1.6T speeds, with POET being forward of the key transceiver suppliers with its 200G per lane transmit chips. POET’s design makes it simple and fast to maneuver seamlessly to 1.6T and permits clients to design their transceivers with best-of-breed elements to maximise speeds and low energy consumption.

Work on AI-Focused Merchandise Accelerates because the Market Out of the blue Desires Options Yesterday

An impetus for the adoption of POET’s know-how has been the unexpectedly fast uptake of AI. Whereas many firms are pursuing AI actions, they are going to discover out that knowledge facilities will wrestle to maintain up with the speeds wanted for AI. POET’s elegant and disruptive answer will permit knowledge facilities to maneuver simply to 800G and 1.6T speeds. Legacy know-how struggles at these speeds and can value extra and eat far more energy. Energy consumption shall be an enormous downside for AI as there’s already a scarcity of base load power to gasoline present utilization, not to mention the large quantities of energy wanted within the close to future.

It has taken POET some additional effort to disrupt an trade and introduce a novel know-how. It additionally took longer than anticipated. POET has needed to go to extremes to get clients to purchase in and its technique is lastly bearing fruit. After inventing a novel optical interposer, it additionally wanted to develop an optical engine– however that wasn’t sufficient. It was too exhausting for purchasers to see how it will work in a transceiver and the way a lot effort it will take to supply one, so POET’s concept was to make one, and even attempt to promote it. This technique has paid off. In March on the Optical Fiber Convention (OFC) POET certainly did introduce and display an optical transceiver. There it launched “Wavelight” its personal 800G and 1.6T pluggable optical transceiver modules. Clients may lastly see a transceiver designed and operational and see its capabilities and consequently, clients are beginning to enroll.

At OFC, POET introduced 4 new merchandise:

1. An 800G transmit optical engine chiplet (200G/lane) that may be a basic constructing block for 1.6T and three.2T pluggable transceivers

2. 8-channel packaged mild sources for C-Band and O-Band wavelengths for chip-to-chip knowledge communications for AI programs and co-packaged optics for the information middle market.

Different Information In the course of the Quarter

On January 3, 2024, POET introduced a design win with Shaoxing ZKTel Gear Co., a provider to Tier 1 firms in China’s datacom and cellular networking industries. POET and ZKTel have been collaborating to develop a 100G CWDM4 optical transceiver that may go into manufacturing in 2024. POET and SPX even have a roadmap with ZKTel past the preliminary 100G CWDM optical engine gross sales.

In the course of the March quarter, POET additionally introduced it’s at the moment working with MultiLane on POET-branded high-speed pluggable optical transceivers. These new second-generation merchandise shall be designed from scratch and incorporate best-of-breed elements to attain the absolute best performance with the bottom potential energy consumption. The collaboration with MultiLane will considerably shorten the design cycle time to convey POET’s know-how to clients. Energy is a big concern for knowledge facilities and baseload energy is already insufficient even with out the 80% enhance projected to be wanted to help the plans for AI and EV utilization within the subsequent 5 years. Utilities’ present plans are for a 5% enhance over that interval.

The inventory at the moment trades at a completely diluted enterprise worth of roughly $115 million. In response to Yole Group, the optical transceiver market is rising at a CAGR of 15% from $10.4 billion in 2021 to about $24.7 billion in 2027. POET’s product is a element of an optical transceiver and the market is a few third of the transceiver market. If POET can safe even a small portion of that market with its distinctive providing, its valuation ought to far exceed its present value. We imagine the inventory could possibly be value $7.60 per share primarily based on 2026 revenues at 10.3xs EV to Gross sales, discounted at 30% again to current worth.

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