Trump administration mulls restrictions on Chinese optical transceivers, Raymond James comments

Investing.com -- The Trump administration is considering restrictions on new Chinese optical transceivers used in AI data centers as part of its broader effort to secure the U.S. AI supply chain, according to Raymond James. The measure would likely come through an update to the Federal Communications Commission's Covered List rather than an immediate blanket ban on Chinese suppliers or existing data center equipment.

The restrictions would create a new approval process for future optical transceiver models rather than require removal of products already deployed across U.S. AI infrastructure, Raymond James said. The proposal aims to make the full U.S. AI technology stack, including advanced semiconductors, networking equipment, optical infrastructure, and supporting communications hardware, the default global standard.

Raymond James views the timing as calculated pressure ahead of President Trump's planned September 24 meeting with President Xi Jinping, with the administration seeking additional negotiating leverage without materially destabilizing the currently more managed U.S.-China relationship.

The FCC's Covered List identifies communications equipment and services deemed to pose an unacceptable national security risk. Over the past year, the FCC has expanded the list beyond named companies toward broader product-category restrictions covering foreign-produced drones, routers, robots, and power inverters.

Existing optical transceiver models that have already received FCC authorization could continue to be imported, sold, and used. The restriction would apply to new foreign-produced models seeking authorization. Manufacturers could potentially preserve market access by obtaining Conditional Approval from the Department of War or the Department of Homeland Security.

The Covered List already includes equipment from Huawei and ZTE. Optical transceivers provide the links between GPUs, switches, storage, and other data center components, making them part of the connective tissue of the AI stack.

Raymond James said several questions remain unresolved, including whether the restrictions apply only to China or to all foreign-produced optical transceivers. Under recent FCC frameworks, a product manufactured outside the United States may be treated as foreign-produced even when the manufacturer is headquartered in the United States or an allied country.

China has said it will take all necessary measures in response.

Raymond James Semiconductors Analyst Simon Leopold said the restrictions could encourage Western operators to sign long-term agreements with Western vendors such as Coherent (NYSE: COHR), Lumentum (NASDAQ: LITE), and Applied Optoelectronics (NASDAQ: AAOI). Chinese transceiver manufacturers like Innolight and Eoptolink could reduce sourcing of components from Western vendors, and the Chinese government could restrict supply of key inputs such as indium phosphide wafers.

Raymond James identified Coherent and Applied Optoelectronics as the biggest beneficiaries. Applied Optoelectronics is currently the only major supplier with manufacturing in the U.S. with a major expansion underway. Coherent could establish transceiver manufacturing in the U.S. if it chose to do so, the firm said.

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