Net profit up 45%! How to digest the valuation bubble of Tianfu Communication, valued at 250 billion?

The performance of the AI sector has shifted from a broad-based rally to extreme divergence. Today, an earnings report that misses expectations or exceeds them is enough to cause drastic fluctuations in the stock prices of related technology companies.

On July 18, Tianfu Communication released its semi-annual performance forecast for 2026. The announcement showed that the company expects its net profit attributable to shareholders for the first half of the year to be between 1.124 billion and 1.304 billion yuan, representing a year-on-year growth of 25% to 45%. Following the release of the performance forecast, multiple brokerage firms provided immediate commentary, unanimously agreeing that this performance exceeded market expectations.

However, strangely, the earnings report that beat expectations did not drive the stock price higher; instead, market performance fell short of expectations.

On the day the financial report was disclosed, Tianfu Communication's stock opened high but closed low, rising only 1% at the close. Looking at a longer time frame, since hitting an all-time high on June 3, the company's stock price has continued to correct, with a decline of over 30% so far, wiping out more than 150 billion yuan in total market capitalization.

It is clear from current market sentiment that the ten-bagger rally that began in April last year has long since overdrafted the company's future growth potential. At this stage, any minor stir in the market triggers significant volatility in the stock price.

For Tianfu Communication, to digest the current high valuation, it must continuously deliver financial reports that meet market expectations, which undoubtedly poses a very difficult long-term test.

From Small Ceramic Sleeves to Global Leader in Optical Components

The rise of Tianfu Communication is inseparable from the deep cultivation and layout by its founder, Zou Zhinong.

Born in Jiangxi in 1968, Zou Zhinong graduated from Jilin University of Technology with a major in Mechanical Design and Manufacturing. After graduation, he joined the Siping Blower Factory as an engineer, later serving as General Manager of a computer company and Technical Manager of a network company. In 2005, Zou Zhinong founded the predecessor enterprise of Tianfu Communication in Suzhou.

Tianfu Communication's initial product was a seemingly insignificant component—the zirconia ceramic sleeve. This tiny element, smaller than a fingernail, is a core key component for achieving precise fiber core alignment in fiber optic connectors.

At that time, the global ceramic sleeve niche market was almost monopolized by overseas enterprises such as Japan's Kyocera, leaving domestic products with no market voice. It took Tianfu Communication several years of continuous optimization of production processes and compression of production costs to gradually establish itself in the market and break the overseas monopoly.

While deeply cultivating its main business of ceramic sleeves, Zou Zhinong led the startup team to expand along the industry chain, successively entering the fields of fiber optic adapters and optical transceiver modules, building the enterprise's initial three-core product matrix. In 2015, Tianfu Communication successfully listed on the ChiNext Board of the Shenzhen Stock Exchange, becoming the first company in China's optical communication components industry to list on ChiNext.

After listing on the capital market, relying on capital support, Tianfu Communication embarked on an expansion path through external mergers and acquisitions. The company first acquired Japan's Tsuois Mold, securing core technologies for nano-level precision lenses; subsequently, it acquired Polar Optoelectronics, mastering high-speed optical module AWG passive solutions and core capabilities in high-end optical coating.

Through multiple rounds of precise M&A, Tianfu Communication's accumulated core technologies have continued to enrich, and the company's positioning has upgraded from a single-component supplier to a one-stop overall solution platform for optical devices.

The true inflection point for the company's explosion appeared in 2023. With the full arrival of the global AI wave, Tianfu Communication welcomed its own era of opportunity.

Starting from 2023, the construction of global data centers accelerated, leading to a surge in demand for high-speed optical modules. Relying on its pre-layout of 1.6T optical engine technology, Tianfu Communication became the first company globally to achieve scaled mass production and delivery of 1.6T high-speed optical engines, while deeply binding with the NVIDIA ecosystem and joining its list of core partners.

Leveraging its first-mover technological advantage, the company's industry status continued to climb. According to Frost & Sullivan statistics, based on 2025 external sales revenue, Tianfu Communication ranked first among global optical device suppliers with a 11.7% market share. Among them, the global market share of FAU fiber arrays exceeded 50%, and the market share of 1.6T optical engines broke through 60%, firmly holding the global leadership position in niche fields.

Financial report data intuitively verified the performance explosion brought by the AI dividend. In 2022, Tianfu Communication's revenue was 1.196 billion yuan; in 2023, revenue nearly doubled to 1.939 billion yuan; in 2024, revenue increased to 3.252 billion yuan; and in 2025, it climbed significantly again to 5.163 billion yuan.

Net profit also grew rapidly in sync, soaring from 403 million yuan in 2022, 730 million yuan in 2023, and 1.344 billion yuan in 2024 to 2.017 billion yuan in 2025. In less than four years, the company's revenue and net profit both achieved nearly five-fold growth.

Sustained high performance growth directly drove the stock price higher. In 2023, 2024, and 2025, the company's stock price surged by 331.97%, 43.9%, and 217.63%, respectively. In June 2026, the stock price reached a high of 374.5 yuan/share, with total market capitalization breaking through 408.58 billion yuan, firmly standing at the 400 billion market cap threshold.

Dividends Gradually Fade, AI Valuation Bubble Begins to Clear

As valuations in the AI sector continue to rise, market bulls and bears have increasingly diverged. The evaporation of over 150 billion yuan in Tianfu Communication's market capitalization over two months is a direct manifestation of concentrated market divergence.

From a profitability perspective, the company's gross margin showed a trend of rising first and then falling. In 2023, Tianfu Communication's overall gross margin was about 54.4%; in 2024, it rose to 57.22%, with significantly enhanced product pricing power under the boost of the AI dividend. However, upon entering 2025, a profitability inflection point appeared, with the overall gross margin falling back to 53.96%, and the gross margin of core main business optical communication components dropping from 57.29% to 53.62%, indicating a clear decline in overall profitability.

The core reason for the sustained decline in the company's profit margin over the past year lies in price suppression from a single super-large customer.

Financial report data shows that in 2025, the sales proportion of Tianfu Communication to its largest customer, Fabrinet (a contract manufacturer in the NVIDIA system), was as high as 63.31%, and the combined revenue proportion of the top five customers accounted for 89.73%.

Relying on a single customer for over 60% of revenue means the enterprise has completely lost pricing power. As 800G optical modules scale up, Fabrinet, as NVIDIA's core contract manufacturer, has sufficient motivation to compress upstream supplier profits. Even though Tianfu Communication's products possess technological advantages, in the eyes of downstream large customers, they are ultimately just component suppliers whose costs can be optimized.

Beyond declining profits, a more hidden risk lies in abnormal cash flow data.

As of the end of the first quarter of 2026, Tianfu Communication's monetary fund balance was 3.027 billion yuan, an increase of only 30 million yuan compared to 2.997 billion yuan at the end of 2025. That is to say, the company earned nearly 500 million yuan in net profit in the first quarter, but book cash hardly grew, clearly deviating from normal operating logic.

Analyzing the data reveals that most corporate profits have 沉淀 into inventory and accounts receivable. At the end of the first quarter, the company's inventory was 539 million yuan, an 18% increase from 457 million yuan at the end of 2025; accounts receivable were 1.243 billion yuan, a 10.5% increase from 1.124 billion yuan at the end of 2025.

Extended customer payment cycles and continuous inventory accumulation mean that the seemingly bright profit growth has not translated into solid cash flow, and the quality of corporate earnings continues to weaken.

Not only are financial data continuing to weaken, but the core logic relied upon by Tianfu Communication for growth is also loosening.

Reviewing the company's explosive growth in recent years, the essence is relying on the dividends of AI computing power construction to eat into the surge in demand in the optical module industry. Since 2023, overseas tech giants such as NVIDIA, Google, and Microsoft have continued to increase capital expenditures on AI computing power, with the industry's overall expenditure expected to exceed 400 billion US dollars in 2026.

However, the current AI capital expenditures of major technology companies account for a historical high proportion of their total revenue. If the growth rate of subsequent capital expenditures slows down, Tianfu Communication, as an optical device supplier at the very top of the industry chain, will inevitably bear the pressure of industry cooling first.

Conclusion

From small ceramic sleeve parts to the global leader in optical devices, Tianfu Communication has walked a textbook-style growth path: deeply cultivating niche tracks to build technical barriers, supplementing high-end capacity through M&A, and finally seizing the super windfall of AI computing power explosion to achieve leapfrog growth.

Over the past four years, with five-fold growth in revenue and profit and a ten-fold increase in stock price, Tianfu Communication has become a benchmark for AI technology growth enterprises.

But the capital market always overdrafts expectations and does not cling to the past. Previously, the market pushed the company's market capitalization above 400 billion, having already prematurely realized the most optimistic growth expectations for the next few years. Therefore, when unexpected performance lands and growth speed fails to continue exceeding expectations, valuation correction and bubble clearing become inevitable.

The current Tianfu Communication remains in the AI wind tunnel with positive performance growth, but multiple hidden dangers such as declining gross margins, deteriorating cash flow, and a single customer structure are manifesting centrally, which is also the core reason for the continuous pullback in stock price.

Whether it can break through again and restart growth in the future cannot be determined with certainty. But what is certain is that the time left for Tianfu Communication to verify its growth logic is running out.