The rapid growth of data-intensive workloads is putting serious pressure on network infrastructure. This article looks at how the industry is moving away from traditional pluggable optical transceivers toward co-packaged optics (CPO), where optical engines sit right next to switching silicon.
Drawing from IDTechEx’s latest report, let’s dig into why this shift is happening, the packaging tech making it possible, and what the market might look like over the next decade.
The Limits of Pluggable Optical Transceivers
Pluggable optical transceivers have been the backbone of high-speed data center and telecom networks for years. People love them for their flexibility, standard form factors, and the convenience of swapping modules without shutting anything down.
But as data rates climb and power efficiency matters more, their limits are getting hard to ignore. Electrical signals have to travel from the switch ASIC all the way to the front panel, and that journey eats up power and degrades the signal.
Why Electrical Trace Length Matters
Long electrical traces cause signal loss and higher latency. They also force the system to use more power just to keep the signal clean.
Plus, there’s only so much bandwidth you can push through the front panel, so pluggable optics are starting to hit a wall in terms of future throughput.
Near-Package Optics: A Transitional Step
To get around these bottlenecks, the industry tried near-package optics. Here, optical engines sit closer to the switch ASIC, which shortens the electrical path and helps with signal quality.
This approach keeps some modularity, but it’s only a partial fix. Near-package optics still don’t solve key challenges in scaling, efficiency, or total integration.
Why Near-Package Isn’t the Endgame
You get better performance, but you don’t get rid of electrical interconnects. Those leftover electrical paths still limit what near-package architectures can do for the next wave of ultra-high-bandwidth systems.
True Co-Packaged Optics Explained
Co-packaged optics take things further. In CPO, the optical engine sits right alongside—or even stacked with—the switching silicon.
This setup shrinks the interconnect length and resistance, slashing latency and power use. Hyperscale data centers and high-performance computing are especially interested in this approach.
Advanced Packaging Makes CPO Possible
CPO needs a bunch of advanced semiconductor packaging technologies, including:
Industry Momentum and Real-World Adoption
This idea isn’t stuck in the lab anymore. At GTC 2025, NVIDIA rolled out Spectrum X Photonics and Quantum X Photonics, both using co-packaged optics at their core.
These products use TSMC’s SoIC X technology. It relies on bumpless hybrid bonding to stack components vertically at sub-ten-micron pitch, which is a big deal for merging photonics and logic at scale.
The Role of Foundries and Ecosystems
TSMC’s SoIC X and COUPE platforms are quickly becoming essential for CPO. When companies like Broadcom jump on board, it shows just how important 3D integration and hybrid bonding are for the future of networking chips.
Market Outlook: A Decade of Rapid Growth
IDTechEx says co-packaged optics are set for massive growth. Starting in 2026, the market could grow at a 37% compound annual growth rate, topping $20 billion by 2036.
Most of that revenue will come from network switches. A single high-end switch might pack in as many as 16 photonic integrated circuits (PICs). Optical interconnects for AI systems make up a smaller but still meaningful slice—about 10% of the market.
CPO as a Foundation for AI and Cloud Scaling
AI accelerators and cloud infrastructure just keep ramping up. To keep up with the demands for power, bandwidth, and lower latency, co-packaged optics (CPO) will play a huge role.
Honestly, it seems like CPO is shaping up to be a cornerstone for the next wave of digital infrastructure. It’s hard to imagine large-scale AI and cloud without it now.
Here is the source article for this story: Co-packaged optics market to grow at 37% CAGR to $20bn by 2036