Citi said in an Aug. 9 research note that the reported U.S. effort to block Chinese optical modules from entering the American market has not translated into an active ban under current Federal Communications Commission rules.
The note followed a Reuters report on Aug. 4 that said the Trump administration and the FCC were considering such a move. After reviewing the FCC framework already in force, Citi said optical modules are not listed in any effective prohibition and that the idea remains at the proposal stage.
Citi’s central view is that Chinese vendors currently supply 60% to 70% of high-speed optical modules bought by U.S. hyperscalers. With non-Chinese suppliers unable to replace that volume in the near term, the bank said the odds of an enforceable ban taking effect soon are low.
Optical modules are not on the FCC’s active restricted lists
According to the report, FCC Order 26-50, passed on July 22, formally established two types of restricted-list mechanisms.
- The first is manufacturer-based. It directly names entities such as Huawei and ZTE, and their products are restricted regardless of where they are made.
- The second is origin-based. It targets entire product categories manufactured outside the U.S. and currently covers drones, routers, inverters, and advanced robotic equipment.
Citi said optical modules fall into neither category. The only place where they appear in Order 26-50 is an example sentence under hardware and software bill-of-materials disclosure requirements: 「Should we list several key components, such as modular transmitters, IoT modules, semiconductors, and optical modules?」 Citi said that language belongs to the disclosure section, not the ban section. In its reading, optical modules are treated as components, similar to chips inside routers or sensors inside drones, rather than restricted end products.
Citi lays out three possible regulatory scenarios
The bank grouped future policy options into three scenarios and ranked them by likelihood and impact.
The first is a manufacturer-based restriction. Citi called this the least likely route because Chinese suppliers account for 60% to 70% of demand for high-speed optical modules from U.S. hyperscalers. Blocking major Chinese vendors outright would directly hit U.S. AI infrastructure build-outs.
The second is an origin-based restriction that applies to all products made outside the U.S. Citi described this as the harshest scenario. It would bring a heavy shock as well and could force the U.S. to create broad exemption mechanisms. The note said that outcome could benefit equipment makers and automation companies.
The third is an origin-based approach limited to goods made in China. Citi said this would leave room for overseas capacity strategies, but the definition of “origin” is still unresolved. Design, firmware, and control over the supply chain could all become relevant factors.
Among the three, Citi said origin-based restrictions are more likely than manufacturer-based ones, but it still sees a low probability of implementation in the near term.
Supply constraints are the main obstacle to quick enforcement
Citi estimated that Chinese optical module suppliers collectively hold 60% to 70% of the U.S. hyperscaler market for high-speed modules. U.S. optical module companies are building domestic production lines, but those lines need time to ramp and cannot meet AI data-center demand in the short run, the bank said.
If a ban were actually enforced, U.S. AI infrastructure construction would come under direct pressure. Citi said that would run against the Trump administration’s stated goal of maintaining U.S. leadership in AI.
The note also said the FCC has clearly retained the power to modify or shelve restrictions, and that there are precedents for that. Citi pointed to the U.S.-China diplomatic calendar in September and November 2026 as natural turning points. In its view, optical module restrictions could become part of negotiations over rare earths, agricultural purchases, or other bilateral priorities, serving as bargaining leverage rather than necessarily moving into execution.
How fast U.S. optical module companies can build and ramp domestic lines will be a key variable, Citi said. Automation equipment suppliers and line integration companies may benefit from that process, but it would still take several quarters of capacity ramp-up. The bank’s near-term call is that implementation risk is low, while the long-term substitution trend is already in place.
Company exposure differs sharply across names
Citi said the impact would vary widely if restrictions were eventually imposed.
Eoptolink and DSBJ have the largest exposure to U.S. optical-module exports among the companies covered. Under both a manufacturer-based restriction and a broad all-foreign-origin restriction, they would face higher risk. If the final framework only targeted Chinese origin, their overseas capacity build-outs could provide some relief.
Tianfu Communication, by contrast, was described as only indirectly affected because it supplies passive components. Citi said its products do not fall within the scope of the restricted lists across the ban scenarios discussed, leaving it relatively insulated.
DSBJ
Citi assigned DSBJ a target price of RMB 350 and a buy rating based on a sum-of-the-parts approach. In the breakdown, the bank valued the optical-module business at 20 times expected 2027 earnings per share, the optical-chip business at 50 times, the AI PCB business at 25 times, and the traditional business at 15 times. Citi said DSBJ carries exposure through both optical modules and optical chips, though overseas manufacturing capacity could cushion the blow if regulation ultimately focuses on origin rather than named manufacturers.
Eoptolink
Citi gave Eoptolink a target price of RMB 701 and a buy rating, based on 20 times expected 2027 earnings per share. The bank said that multiple sits 0.5 standard deviations below the company’s five-year historical average. In Citi’s view, the valuation already reflects a strong 800G/1.6T cycle and ASIC/Scale-Up opportunities, but does not fully price in the potential substitution risk that CPO could pose to NVIDIA-related customers.
Tianfu Communication
Citi assigned Tianfu Communication a target price of RMB 419 and a buy rating, based on 34.3 times expected 2027 earnings per share, a level in line with its five-year average. As a passive-component supplier, the company’s products are outside the scope of the restricted lists regardless of which restriction model is adopted, Citi said, making it the lowest-risk name among the three.
Citi’s conclusion: debate may continue, but rapid enforcement is unlikely
The report’s conclusion was direct. Chinese optical module makers remain hard to replace in the U.S. AI supply chain, and the U.S. does not yet have enough capacity to fill the gap in the short term. Discussions around restrictions may continue, but Citi does not expect a fast move into enforcement.
The bank said investors should watch two variables most closely: the pace of U.S. domestic capacity construction and the direction of negotiations over optical modules within the broader U.S.-China diplomatic agenda. Citi’s view is that the localization and substitution logic around optical modules has not changed, but the time window may be longer than the market had expected.
The article cited by MarsBit said the piece was based on Chaoxiang Research’s整理 and interpretation of a third-party broker report, Citi Research dated Aug. 9, 2026, together with public market information. It also stated that the ratings, target prices, earnings forecasts, and related judgments quoted in the piece represent the views of the broker’s analysts and institution only, not Chaoxiang Research, and do not constitute investment advice.
The note ended with a standard risk statement saying market decisions should be made independently and that the article should not be used as a basis for buying or selling any securities.