AI connectivity has a new currency. It’s coherent pluggable optics
“We’re really now in a pluggable coherent world,” said Andrew Schmitt, founder and directing analyst at Cignal AI, as he began his presentation at OFC in LA last week.
In their optical component reports over the last year, Cignal AI has maintained that coherent pluggables are on the rise — and they now represent the primary source of bandwidth growth in telecom.
In 2024, 400ZR pluggables saw strong adoption, but the growth came not from the traditional network operators as one would expect. It came from hyperscalers and colocation operators who now make the biggest consumers of coherent pluggables for data center interconnect (DCI) and AI.
“Hyperscaler optical hardware spending has exploded,” Schmitt said. “This is, you know, the type of equipment that Ciena, Fujitsu, Nokia [make], and we’ve seen a tremendous amount of growth rate, particularly in the last couple of quarters.”
10 million units of 400G+ datacom modules, for example, were shipped in the last quarter of 2026, bringing in over $5 billion in revenue, driven primarily by 800GbE and 1.6TbE designs.
According to their research, hyperscaler spending is now twice that of service providers. “What’s happened is just a handful of hyperscalers — five or less — now account for more spending on optical gear in North America than in essence, everybody else. So this has been a massive transformation,” he noted.
Cignal AI projects the optical components market to reach $29 billion by 2029, and identifies AI-driven data center and transport builds as the biggest drivers.
As large-scale AI model training, inference, and data movements take place across distributed compute clusters spanning data centers to edge, east-west and DCI traffic have grown in leaps and bounds. The 400G ZR/ZR+ based solutions are increasingly insufficient for this, and new generations of connectivity solutions are required to support greater fiber capacity without adding to the physical infrastructure. That’s where 800ZR/ZR+ and 1600ZR/ZR+ come into play.
According to Cignal AI, 800ZR/ZR+ which now represents one of the fastest growing segments in the optical networking infrastructure market, will start shipping in large numbers in 2026, driven by AI scale-across architectures.
“We think that [800ZR] is going to ramp twice as fast, and we’ve been told that our estimates are conservative.”
The company expects to see a compound annual growth rate (CAGR) of 145% for 800G ZR/ZR+ between 2025 and 2029. “After 2026, telecom bandwidth growth will be overwhelmingly dominated by pluggables,” a Cignal AI report stated.
This is not just coming from one source. The Dell’Oro Group predicts that with ZR optics now being the most widely-used pluggable in IP over DWDM, 800 ZR/ZR+ will see a sharp rise in shipments this year, and could amount to one-third of IPoDWDM ZR/ZR+ revenue. Marvell, Cisco, and Ciena were the top suppliers of ZR/ZR+ optical pluggables in the third quarter of 2025, according to the research group.
“These coherent optics are like nothing that has ever been seen before in the telecom industry. And…we’re really starting to see more of the datacom volumes and the datacom mentality with coherent, which has traditionally…taken a much longer time to ramp,” Schmitt said.
So, what’s fueling the growth? “The economics, the price, the volume, and the supply chain resiliency of these pluggables are so attractive that it’s now making its way back into all of these legacy systems,” he said.
Let’s double-click on that for a minute. First and foremost, coherent pluggables have become faster with each generation, and with 800G ZR+ modules now supporting extended reaches of over 1,000 km, that has expanded their application across metro, regional, and long-haul networks. Additionally, their high-capacity performance has become critical for supporting the extreme bandwidth requirements of AI clusters.
Second is cost. The pluggable modules reduce the overall system cost by packing digital signal processors and other components into their small form factors, enabling what is now popular as the “pay-as-you-grow” model. Operators can acquire routers and switches as required and add coherent functionality to them, dodging large upfront investments.
Additionally, the miniaturization unlocks massive power efficiency per bit, which is a key ask among data center and network operators grappling with rising energy costs and environmental footprint. According to some, 800G coherent optical transceivers brings down power bit per by up to 99% compared to some legacy platforms.
The cost per bit for pluggable coherent, you can’t beat it,” Schmitt emphasized.
Availability is further driving down the cost and price of these components. “The cost of coherent is getting cheaper and cheaper to the point where you’re starting to hear about people using things like coherent light.”
Third is the compact, modular build which compared to the larger chassis-based systems is not only cleaner-looking and occupies a fraction of the space in the rack, but is also plug-and-play and supports many times more capacity.
Schmitt sees the evolution of coherent pluggables to continue in the coming years as 1600ZR gain prominence. “Looking out to the future, we’re really at an inflection point again for pluggables. Looking at the 800ZR, 1600ZR, going out to 2030, those two speeds are going to account for more than half of all the units shipped. And at this point, it’s just getting started. So pluggables have been successful — the volume is just beginning to ramp.”
