The global Interchip Optical Interconnect Market is undergoing a major shift as semiconductor architectures evolve to meet demands for higher bandwidth, lower latency, and better energy efficiency. The market size was valued at USD 15.99 billion in 2024, is expected to reach USD 18.01 billion by 2025, and is forecast to grow to USD 32.73 billion by 2030, corresponding to a compound annual growth rate (CAGR) of 12.7% from 2025 to 2030.
What is Interchip Optical Interconnect and Why It Matters
Interchip optical interconnects refer to optical communication links between chips or within multi-chip modules such as chiplets, interposers, or co-packaged ASICs. Unlike traditional electrical interconnects that use copper traces, optical links use light to transmit data between dies, enabling higher bandwidth densities, lower loss, reduced crosstalk, and improved power and latency characteristics.
As compute-intensive tasks such as AI training, high-performance computing, data centre switching, and 5G infrastructure continue to expand, traditional electronic interconnects are becoming bottlenecks. The interchip optical interconnect market is positioned to address these challenges and support next-generation architectures.
Key Growth Drivers
The market growth is driven by several factors, including the explosive demand for data across industries. The surge in AI, machine learning, and cloud computing workloads is increasing the need for ultra-fast, high-density inter-chip communication. Advances in packaging and photonics, such as co-packaged optics, optical interposers, silicon photonics, and hybrid electro-optical systems, are reshaping how data travels between chips.
Energy efficiency mandates are also playing a key role. With rising power consumption in data centres and edge systems, optical interconnects, which offer lower energy per bit compared to electrical links, have become increasingly attractive. Additionally, the global rollout of 5G and the expansion of edge computing infrastructures have further increased the need for short-reach, high-bandwidth interconnects.
Market Segmentation and Insights
The market is segmented based on several dimensions:
Integration Level: Co-Packaged Optics (CPO), On-Board Optical Engines, and Optical Interposers.
Components: Light Sources such as VCSELs, Modulators and Drivers, and other supporting elements like waveguides, couplers, and interposers.
Link Distance: Ultra-short (up to 1 cm for chip-to-chip), Short (1–10 cm for interposer or board level), and Extended (more than 10 cm for board-to-board communication).
Performance Tier: Standard (<25 Gbps/lane), Mid-tier (25–100 Gbps), and High-end (>100 Gbps).
End-User Applications: High-Performance Computing, Data-Centre Switch ASICs and Routers, AI/ML Accelerators, Telecom and 5G Fronthaul, and emerging applications in automotive and consumer electronics.
Ultra-short links play a vital role in chip-to-chip communication within advanced packaging systems, while short-reach optical links dominate near-term revenue projections. These short-reach connections are expected to account for nearly 40% of total market share by 2027.
Regional and Technology Trends
Silicon photonics integration is one of the most transformative trends shaping this market. It is projected that nearly half of all optical transceivers will use silicon photonics technology by 2028. Optical interposers, which embed photonic waveguides in silicon interposers for chiplet systems, are also emerging as a promising growth area, capable of supporting bandwidth densities several times higher than copper.
Regionally, the leading markets include China, Japan, Europe, and North America. China is investing heavily in optical interconnect technologies to strengthen its AI and data centre infrastructure, while Japan continues to lead in precision electronics. Europe’s market is driven by automation and research ecosystems, and North America remains at the forefront due to strong demand from hyperscale data centres and high-performance computing industries.
Competitive Landscape
The competitive landscape features a mix of semiconductor giants and emerging photonics specialists. Major players include Intel Corporation, Broadcom Inc., Ayar Labs, Nvidia Corporation, Cisco Systems Inc., and other niche companies focusing on photonics and component manufacturing.
Key strategies adopted by these companies include developing co-packaged optics adjacent to switching ASICs and AI accelerators to reduce power and latency, pursuing mergers and acquisitions to enhance photonics capabilities, and collaborating with foundries and packaging specialists to enable scalable integration of optical technologies.
Challenges and Restraints
Despite strong growth potential, the market faces challenges such as manufacturing complexity and high production costs. Integrating photonics with CMOS chips, managing thermal issues, and maintaining yield optimization present significant engineering difficulties.
The absence of universal standards and variations in packaging approaches also affect the pace of adoption. Moreover, optical components like VCSELs and resonators are sensitive to temperature variations, demanding precise alignment and calibration. In cost-sensitive markets, traditional electrical interconnects continue to dominate due to lower prices and established supply chains.
Strategic Implications
For stakeholders, the strategic implications are significant. Chip and system designers are encouraged to integrate photonic-ready architectures early in their development processes to secure a competitive edge in high-bandwidth applications. Component and packaging suppliers have growing opportunities to provide advanced optical modules and alignment solutions that complement this transition.
Data-centre operators and hyperscalers stand to gain the most immediate benefits by adopting optical interconnects that reduce latency and energy usage while enhancing throughput. Investors and policymakers should also recognize this sector as a crucial enabler of future compute infrastructure and align it with broader national semiconductor strategies.
Future Outlook
The interchip optical interconnect market is well-positioned for rapid expansion, driven by the convergence of AI, high-performance computing, advanced packaging, and data-centre transformation. As the market value approaches USD 33 billion by 2030, optical interconnects are expected to transition from specialized high-end applications to mainstream adoption across compute-intensive systems.
Cost structures are likely to improve as manufacturing processes mature and standardization advances. Over time, this could open doors for broader adoption in areas such as automotive SoCs, edge devices, and consumer electronics. The transition from copper to photonic communication within and between chips marks a revolutionary shift in semiconductor design, setting the foundation for the next era of high-speed computing.
Conclusion
The interchip optical interconnect market is transforming the future of semiconductor communication by replacing traditional electrical pathways with photonic links that deliver unmatched speed, efficiency, and scalability. With its market value projected to nearly double by 2030, the technology is set to play a pivotal role in addressing the growing data demands of AI, HPC, and cloud infrastructures.
As optical technologies mature and production becomes more cost-effective, the market will move closer to widespread adoption, ushering in an era where light replaces electricity as the primary medium for inter-chip communication. The years ahead are expected to mark one of the most significant transitions in semiconductor interconnect technology, paving the way for a faster, more efficient, and more sustainable computing landscape.
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