(Bloomberg) -- A potential ban on the import of Chinese optical transceiver modules into the US would inflict collateral damage on US hyperscalers, exacerbating a supply bottleneck that no American firm can ease, research firm Counterpoint warned on Wednesday.
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The proposed ban on Chinese optical modules would disrupt the hundreds of billions of dollars' worth of AI infrastructure that US firms are standing up in the country. The so-called hyperscalers, known for their extraordinary spending, like Amazon.com Inc. and Microsoft Corp., will face higher costs if Chinese optics suppliers are cut off, bringing about lower utilization of powerful and pricey AI accelerators, according to Counterpoint analyst Neil Shah.
"The belief that the optical transceiver market can be neatly divided geographically misinterprets how the hardware ecosystem operates," Shah said in a research note posted on Wednesday. "The global AI ecosystem remains heavily reliant on Chinese optical module vendors for scale execution."
The ban is targeting one of the very few areas of the global AI infrastructure dominated by Chinese companies, which according to Counterpoint holds nearly two thirds of the global supply of optical transceivers. Chinese firms including Zhongji Innolight Co. and Eoptolink Technology Inc. have an edge over western rivals in manufacturing at scale the high-precision modules essential to ensuring speedy transmission and data integrity within and across server racks.
Restricting Chinese components in US data centers would also come at the expense of other western firms in the AI infrastructure supply chain, Shah said. The optical transceivers made by Chinese firms integrates chips from Broadcom Inc. and Marvell Technology Inc., lasers and optical chips from Lumentum Holdings Inc. and Japan's Mitsubishi Electric Corp.
The initial report of a trade curb triggered a stock rout among Chinese optical firms, with Zhongji Innolight tanking as much as 14% on Wednesday. Its western rivals from Applied Optoelectronic Inc. and Coherent Corp. to Nokia Oyj rallied.
"While policy initiatives seek to insulate critical AI supply chains, sudden regulatory shifts risk creating hardware bottlenecks that could slow down deployment schedules for the world's largest cloud operators," Shah said, adding that suppliers in the West do not have the capabilities to absorb Innolight and Eoptolink's volume within the next year or two.