Serenity World

Al/Semi Supply Chains Research
DYOR; may trade/hold names disc, views my own.

[Serenity World @alaebitoreditX]

Holy... We've reached 1,000,000 followers!

It's genuinely incredible that so many people care to read about my ideas around AI chokepoints and bottlenecks.

From substrates, lasers, actuators, memory, power to some of the most niche parts of upstream supply chains.

[Serenity World @alaebitoreditX]

We're almost there...

[Serenity World @alaebitoreditX]

uhhh... the Unitree IPO is more than 8000 times oversubscribed by retail investors.

The demand for pure play humanoid companies is absolutely enormous?

I'm personally in the US-based Agility Robotics club (Softbank, $NVDA, $AMZN, Foxconn, etc), at $2.5B premoney via $CCXI.

[Serenity World @alaebitoreditX]

Woah, $RIOT announced a $9.1B deal with Anthropic, with a possible contract extending to $16.1B, over 20Y.

$AMD also exercised its option to expand its existing deal with Riot. (And they still have another 1 GW campus they have LOI with for a tenant)

[Serenity World @alaebitoreditX]

Be Barrons:

- Wants to write about optical supply supply chains like $AAOI

- Hiring DPT: who needs engineers to write about this something this simple? Let’s find underpaid political philosophy backgrounds.

Barrons: “Memestock? looks like our next article, I don’t understand

[Serenity World @alaebitoreditX]

Now that markets are hosting a laser party again from $SIVE, OE Solutions, $LITE, Coherent, to $AAOI.

There’s a pretty interesting study:

Both from Fidelity and a UC Berkeley research paper, that the best investors are the ones who either…

[Serenity World @alaebitoreditX]

Just some near term events:

- OCP APAC tomorrow (Ayar, Lightmatter, $AMD, $NVDA) and your CPO players are giving announcements/updates.

This should be a catalyst for certain optical players.

[Serenity World @alaebitoreditX]

All right chat, it’s that time of the month again.

What’s your #1 highest conviction stock and why?

I actually learn a lot from reading these, so share some cool ideas.

[Serenity @aleabitoreddit]

I think it’s a good time to revisit $SIVE ~$427m/yr midpoint capacity revenue modeled projections.

Given recent industry earnings:

> $AAOI cited +20-40% demand imbalance for transceivers (with lasers as the bottleneck).

> $MTSI saying many "Customers are coming to us with urgency due to the general supply shortage of indium phosphide DFB lasers" (in other product lines)

> US proposal ban on new Chinese optical transceivers (Innolight/Eoptolink)

> AOI no meaningful participation in first-gen CPO deployments due to lasers being allocated toward transceivers.

The read through is that it’s possible to apply the same capacity-demand absorption modeling applying to $AAOI, but for other laser players like Sivers too.

Given the widespread shortage and demand imbalance for InP CW DFB capacity.

[Serenity @aleabitoreddit]

Today I'm writing a weekend guide on how to do DD when shorting $NBIS:

First, you look at hyperscaler earnings for AI cloud read through:

> $GOOGL: reports record AI cloud demand + backlog + margin increases from earnings

> $AMZN: reports record AI Cloud demand + backlog + margin increases from earnings

> $META: reports higher than expected prices for available capacity from earnings.

Now, time to look at Nebius:

-> $NBIS: Growing hundreds of percent to $7-9B ARR by Q4. Growing margins, and guided 4GW+ contracted power.
-> Sees Uber/Waymo splitting, putting more focus on Avride
-> Sees Clickhouse growing rapidly every quarter.

Okay looks bad! But next, you need a hedge?

-> Wow! A $NIKE brand executive, after the stock dropped 75% over the past 5 years, went to $LULU to save that brand next? Lululemon seems good.

Conclusion: Short Nebius and go long on $LULU

[Serenity @aleabitoreddit]

Yes, I'm still bullish on memory like $MU / Samsung.

As I said earlier, markets tend to rotate from bottleneck to bottleneck.

This week it looks $AXTI to $LITE in the photonics sector is the focus again.

The thing is... the primary thing that changed are the stock prices, followed by some narratives + updates sprinkled in here and there.

For photonics:

> We already knew $COHR / $LITE lasers were completely sold out for the next 2 years during July's drop.

> We knew about demand imbalance from $AAOI from last quarter's earnings calls.

Nothing deteriorated fundamentally during July's crash, other than listed price after liquidations.

Yet tons of people called $AAOI a "scam" when it dropped to $75, or $AXTI a "scam" on its drop to $35...

But are bullish again at $140 or $80, when the transciver/InP substrate bottleneck hasn't changed at all, but maybe even got worse... (eg. draft for US ban on new china optical transceivers, scale up demand projections)

For Memory:

I'm witnessing a lot of retail capitulation, but the same people I'm seeing were mega bullish after $MU signed 16 SCAs and gave exceptional projections a month ago.

Or were celebrating Samsung having the highest operating profit in the world.

There's updates here and there eg. Rubin Ultra with memory optimizations (which Nvidia strives for every generation), with prices no longer being hiked way above expectations to the extreme.

But the operating income relative to MC is just absurd around current prices, especially memory becomes structural.

And the demand imbalance should be even worse next year.

People tend to capitulate and follow narratives when a sector drops (eg. Helium/LNG back in Iran war), even if the bottleneck or fundamental situation hasn't really changed much (eg. $SPCX Elon earnings call reiterating memory tightness).

I can't tell others what to to do:

But $AAOI at $140 and $AAOI at $75 are the same company.

Samsung at a $1.5T MC and Samsung at a $980B MC are the same company.

Just valuations and narratives (often noise) change, and markets rotate from sector to sector.

[Serenity @aleabitoreddit]

I've mapped the entire Wall Street bear playbook on AI names:

Have your favorite institution/media insert one of these name down below:

1. < ______ [GPUs, Transcivers, MLCC, Memory...] are a commodity set to crash>

2. < ______ [YMTC, CXMT, Dongshan...] from China will flood the market >

3. < ______ [Micron, Nvidia, ...] from unverifiable channel checks is facing issues >

4. < ______ [Kospi, Sivers, ...] is a bubble like the ____ [2007, 2021] crash>

5. <____ [1,2,3, ...] unexpected rate hikes this year>

6. < _____ [Google, Nvidia, Deepseek ...] optimization removes the need of this!>

in a new headline, and it's ready to go!

[Serenity @aleabitoreddit]

There we go, White House finally invests in more breath in critical minerals/materials. Amazing policy move, as a TLDR:

- $WWR receives $25M (graphite)
- $SRL (ASX) receives $400M (Scandium)
- $FEAM receives $8M (Boron)
- $HREE receives $4.8M (magnet rare earths)

out of the public companies.

With more private investments from $150 million into Niron Magnetics or $85 million into Standard Bauxite.

It's literally spare change to the US gov, for ENORMOUS amount of downstream applications.

More should be done with funding amounts to accelerate development and derisk supply chains (don't own any of the above, just support the policy move), but great announcement.

[Serenity @aleabitoreddit]

Some more TLDR takeaways from $AAOI ER:

- They also flagged DSP and TIA bottlenecks, which is a positive industry read through for names like $MXL, then $SMTC and $MTSI.

- For revenue growth, they're expecting more than $500 million revenue Q4, which is absurd growth.

For reference:
Q2: $191.9M
Q3: ~$255M-$290M
Q4: $500M+
By mid-2027: ~$1.41B quarterly revenue run-rate

Always impressed by the revenue ramp from some of these optical players.

[Serenity @aleabitoreddit]

I usually make fun of sellside, but Rosenblatt has pretty goated channel checks on optical names, and their reports are one of the few I like talking about.

$AAOI, $LITE, $SIVE, and the laser party has started to recover around the est. timing windows.

eg. last month: "Multiple short sellers told them they will likely close their positions... late July and early August".

They might have missed that they believed $AMD would be $AAOI's first CPO customer... since AAOI said they would be missing from first-gen CPO (maybe future gen?)

But lot of their talking points about China CPO laser positioning (eg. 2-3 years behind) got corroborated word-for-word from AAOI earnings today.

[Serenity World @alaebitoreditX]

Unitree, China's humanoid leader, is set to IPO this month at a $9B valuation! (~$6.2B originally per March filing).

Derivative markets are pricing open at an implied $36.04B MC, roughly ~4X listing price.

$CCXI / Agility Robotics.

[Serenity @aleabitoreddit]

Earlier today, optical interconnect company Lumilens "emerges from stealth" at a $5.5B valuation, after raising $700m.

Just as a recap from $POET / $SIVE Linkedin OSINT mapping I shared earlier, Lumilens was supplying a top 3 hyperscaler customer.

So we got confirmation of that a month later, along with the material figure that Lumilens has a "multi-billion-dollar customer agreement".

And just for reference, $POET has existing contracts with Lumilens ($50m purchase order, up to $500m) + contracts with $SIVE (depending on product lines).

I actually took tiny positions in POET again after reading this news, since it finally gives them visibility into extremely well funded hyperscaler suppliers (on top of Poet's really large balance sheet).

But TLDR:
> Lumilens around similar (or even higher) valuations as Lightmatter/Ayar, bigger than markets thought with hyperscaler customers.
> nice read through upstream on $POET (derisking) / $SIVE.
> Great for optical valuations in general, seeing a company go to $5.5B in 2 years.

[Serenity @aleabitoreddit]

Wow, there's gem after gem in $AAOI earnings for $SIVE + other laser player readthrough.

1. AAOI not meaningfully participating in CPO first-gen deployments.

"We just can’t make enough of them [CPO lasers] to be involved in their current first-generation [CPO] deployments because there’s just not enough capacity. We have to prioritize our ability to make lasers for our own transceivers first"

So first-gen CPO laser deployments, might even be narrowed down further for Western players like $SIVE, $LITE, $AVGO, and $COHR.

And independent CPO CW laser capacity became more valuable if $AAOI had to turn away more customers...

Also remember Trendforce was talking about $AMD singing CW LTAs? $COHR / $LITE have capacity signed with $NVDA ...

I thought it would be $AAOI, but they might be out of the equation. $MTSI also doesn't look meaningful with early CPO participation (eg. no mention in ER aside from NPO, and removal from Ayar website).

So I wonder who players like $AMD is going to go with for Helios (eg. Sivers + Ayar more likely candidate now)?

Btw, this is not bearish AAOI because they have too much demand for optical transceiver business. Just more bullish on the existing few qualified CPO laser names that have capacity.

2. Demand imbalance and bottleneck for InP lasers / optical transceivers.

AOI's CEO stated kinda supported that when they said: "The customer demand is 20%-40% higher" than expanded built out capacity.

"We are getting this kind of demand from several big customers almost every week. Lasers are the biggest bottleneck right now for the transceiver business"

3. China being years away from having CPO DWDM specification lasers.

I covered this earlier when looking at CPO competition from channel checks.

But AAOI confirming that China is "easily at least two, three years or even longer from having CPO lasers is incredible tread through on defensibility Western laser positioning in the CPO laser chokepoint.

TLDR:

- High demand imbalance for CW lasers and optical transceivers.

- $AAOI not in first-gen CPO due to capacity constraints (not exactly bearish AAOI because they have too much demand for their optical transciver business, but even better news for the few independent players with capacity coming online like $SIVE)

- China years behind in CPO lasers.

[Serenity @aleabitoreddit]

Just some TLDR notes on $AAOI earnings:

- Expects full qualification of 1.6T products by their hyperscaler customer within next couple of weeks

(helpful revenue ramp #2, timelines)

- Continues to believe that AOI will have the largest AI DC transceiver production capacity in the US

(reiterating ambitions during a time when their competitors might get banned)

- Expects facilities toward InP capacity to come online in early 2027

(timeline FYI in terms of further ramp)

- Total capacity is approaching 200,000/u per month, EOY 650,000/u per month of 800g/1.6t. EOY 2027, 930,000/u

(this is the ramp i want to see)

- "increase our manufacturing capacity for our external light source or ELSFP. That's for co-packaged optics or CPO". we anticipate ramping production later this year and into 2027, ultimately culminating in about 400,000 pieces per month in 2028

(need some time to model this into revenue)

- "As we have mentioned before, we've been manufacturing lasers internally for many years. This has allowed us to avoid some of the shortages that have affected others in the industry"

(vertical integration bull case during CW/EML laser shortages)

- We believe that in the future, CPO will continue to drive increased demand for high-power lasers

(thesis validation on CPO sector)

- "to our long-term objective of returning non-GAAP gross margins to around 40%"

- "We ended the second quarter with $508.8 million in total cash equivalents"

I need to double check if the ATM finished or not

- "our ability to deliver revenue in general, and specifically when it comes to 800G products, is limited by our production capacity right now" "If we could produce more, we could ship more right now"

Demand > Supply validation.

- "Most of the increased capacity will be in U.S. Even so, let me say that, like I keep emphasizing, that is not good enough for the customer demand. The customer demand is 20%-40% higher."

Unholy photonics demand validation across the whole sector, read through for $LITE, $SIVE / $JBL, and others is amazing.

- "Not in the next two, three years, especially the demand is so big. Okay? Even combined AI, $LITE, $COHR, $AVGO all together, it's still very tough to meet the customer demand in the next few years"

More optical sector demand validation.

- CPO Timelines: "If you're talking about really high volume manufacturer [for CPO market], I would say more like the late Q3 next year" and "We have been working very close with at least five customer"

If you care about current earnings (which I'm not really looking at closely)

Revenue: $191M vs. $190m
EPS: $.06 vs. $.02

TLDR: Extraordinary demand across the laser + optical sector read through. Kinda supporting Lumentum CEO statement that laser shortage is worse than memory shortages.

2027 capacity ramp on track. To map inflection period with timelines, would be around early next year, as stated in their previous earnings call.

AAOI has the customers now. Limitation is making enough lasers and transceivers.

[Serenity World @alaebitoreditX]

I remain convinced nobody knows how to pronounce or talk about $AAOI in real life.

It’s one letter too long to say $TSM or $AMD.

And nobody ever says to a friend“Wow, I like applied optoelectronics!”

[Serenity @aleabitoreddit]

The unexpected thing of the week... Was $AEVA becoming a CPO/NPO optical source player.

For background: $SIVE is viewed as the high confidence CW DFB laser supplier to Aeva (which is known for lidar).

Today, Aeva reacted with +18.26% AH on news that they signed a JDA with an optical engine player for deployment at a major hyperscaler in H2 2027, production ramp 2028.

"Optical Connectivity will leverage that foundation along with Aeva’s EXISTING high-volume manufacturing and foundry supply chain" for:

- ELSFP (similar to O-Net/Enablence + $SIVE), with Sivers as the likely CW laser + potential amplifier supplier

- On-chip integrated light source (likely $SIVE DFB + Aeva PIC on the architecture/integration side)

TLDR: New TAM and a hyperscaler programs for Aeva for CPO/NPO, positive read through for upstream suppliers like $SIVE.