It's likely to impact hyperscaler AI companies, which are investing heavily in optical interconnect technologies, seen by many as the next battleground in the race for advancing AI performance, latency, and efficiency. China's optical module manufacturing, packaging, and testing are all key elements of the global optical interconnect supply chain, especially since a key raw material, indium phosphide, relies heavily on China's indium supply, with it controlling some 70% of the global market. Key U.S. optical transceiver manufacturers, Coherant and Lumentum, are already running at capacity and are still around 30% overbought by their customers. That has already been happening in the optical interconnect space. In 2025, Chinese manufacturers only accounted for 16% of the global production capacity of electro-absorption modulated lasers (EMLs) and continuous-wave (CW) lasers.