A 12-fold increase in one year, the A-share market once again creates the "Yi Zhongtian" myth

Ask AI · Does a high valuation imply hidden risks in Yuanjie Technology’s growth myth?

Text by | Xiao Li Fei Dao

Recently, Yuanjie Technology’s stock price broke through 1,000 yuan and even surpassed Cambrian, becoming the second-highest priced stock in A-shares after Kweichow Moutai. Its share price soared 12 times in less than a year, which is extremely rare even in global stock markets.

As the eighth stock in A-shares to reach 1,000 yuan, can it break the “curse” of stocks hitting 1,000 yuan?

【The 12-fold surge mystery】

Over the past year, Yuanjie Technology has entered the ranks of A-shares’ “ten-bagger” stocks, thanks to significant improvement in performance.

In 2025, the company’s revenue was 600 million yuan, up 138.5% year-over-year, and net profit attributable to shareholders was 191 million yuan, successfully turning losses into profits and setting a record for the largest annual profit in its history.

▲Source: Wind

Breaking it down, traditional telecom market business involves shipments of medium- and low-speed optical chips like 2.5G and 10G, but growth has stagnated in recent years. In 2025, revenue was only 206 million yuan, down more than 30 million yuan from the 2022 peak. The reason is that global 5G construction has entered a steady phase, operators are slowing capital expenditure, compounded by high localization rates and fierce market competition, causing gross margin to fall from 60% to around 30%.

Another segment is data communication business. The company leverages CW silicon photonics light sources and other optical chip products to seize the market dividend from AI computing power explosions. Revenue share has risen to over 65%, making it a mainstay and new growth engine. This business has a gross margin exceeding 70%, significantly boosting the company’s overall profitability, approaching 2022 levels.

In addition, the valuation premium brought by ample liquidity is also a core reason for the stock price explosion.

Over the past year, the overall A-share market has been trending upward, with leading tech stocks in the AI industry chain seeing significant valuation increases. The most typical example is “Yi Zhongtian,” with a maximum increase of 860% to 950%. Even the weak-profit OEM factory, Foxconn Industrial Internet, surged about 400%, once exceeding 50% of its parent company Hon Hai Precision’s market value.

The same applies to overseas markets. The flood of dollar liquidity has driven optical chip companies like Lumentum to surge over 13 times, with the latest valuation at 185 times.

A-shares market rises, market groups around AI, improved operating performance — under favorable timing, geography, and human factors, Yuanjie Technology, as a relatively scarce domestic optical chip leader, has created a “investment myth” of over tenfold growth in a year, which is hardly surprising.

【Another AI “scalper”】

Computing power is a vast industry chain, with upstream core chips, servers, and components forming the “hardware foundation.”

Among them, optical modules convert optical-electrical signals, effectively building an “expressway” network for information, enabling thousands of GPUs to work together. Their performance parameters directly constrain the efficiency and scale of the entire computing system.

Optical modules are further subdivided: upstream are optical chips responsible for transmitting or receiving signals, represented by companies like Yuanjie Technology. Midstream are optical devices, mainly involved in assembly, packaging, testing, filtering, coupling, modulation, etc., represented by companies like Tianfutong. Downstream are integrated and shipped terminals, represented by companies like Zhongji Xuchuang and EasySun.

It can be said that as demand for large models training and inference grows, optical module shipments increase, and the prosperity of optical chips also rises.

According to LightCounting data, the global optical chip market was worth $3.5 billion in 2024, expected to reach $11 billion by 2030, with a compound annual growth rate of 17%. Meanwhile, data from China Commercial Industry Research Institute shows that the domestic market size exceeded 15 billion yuan in 2024, up from only 9.35 billion yuan in 2020.

▲Global optical chip market size, source: LightCounting

Looking ahead, two main growth drivers will expand the optical chip market.

First, the explosion of AI computing power will increase the demand for optical chips. In recent years, downstream cloud computing vendors have continuously increased capital expenditure. Microsoft, Google, Amazon, and Meta’s combined capital expenditure for FY2025 will reach $350 billion, up about 60%, supporting the expansion of AI data centers and boosting optical chip shipments.

Second, optical chips themselves are undergoing generational upgrades from 25G to 100G, 200G single-channel speeds.

Higher speeds demand more advanced chip materials, design, process technology, and packaging/testing, raising operational barriers. High-end optical chips with speeds of 100G and above have prices and profit margins far exceeding traditional 10G and 25G chips.

From a global perspective, in the mid- and low-end markets of 2.5G and below, 10G, and 25G, domestic optical chips have already achieved global dominance, accounting for over 90%, 80%, and 60% respectively. In higher-end markets, long dominated by US and Japanese giants like Lumentum, Broadcom, Sumitomo Electric, and Mitsubishi Electric, these giants held over 95% of the global share in 2020.

In recent years, domestic optical module companies have begun to break through and rise. Zhongji Xuchuang, EasySun, Huawei, Bright Vision Technology, Hisense Broadband, Huagong Zhengyuan, and Solis Photonics have entered LightCounting’s list of the top ten global optical module companies in 2024. In 2018, Chinese companies occupied only three of the top ten spots.

The global optical communication industry chain is shifting towards domestic production, and domestic optical chip manufacturers are expected to benefit from this localization process. Yuanjie Technology, as a core domestic optical chip leader, has deeply integrated with Zhongji Xuchuang, EasySun, and other major domestic optical module companies, and has obtained NVIDIA supply chain certification.

It is evident that Yuanjie Technology, riding the wave of AI transformation, benefits from explosive growth in the computing power industry chain and is aligned with the “domestic substitution” trend, becoming one of the market’s key AI leaders. It seems almost predestined.

【Beware the sound of the drum stopping?】

Under the group mentality, the capital market has assigned Yuanjie Technology a very high valuation premium.

As of March 31, its latest PE valuation was 453 times, far higher than the optical chip index at 119 times and the AI index at 61 times. Meanwhile, market favorites like the “Big Three” AI giants—EasySun, Zhongji Xuchuang, and Tiansi Tongxin—are valued at 59, 59, and 128 times respectively.

This valuation premium far exceeding industry or peer levels implicitly reflects market expectations that Yuanjie Technology’s high growth driven by AI computing power demand can be sustained. However, this optimistic assumption may face significant challenges.

Currently, global tech giants’ demand for large model training and inference continues to expand, but how long can their high capital expenditure last depends on whether they can successfully commercialize and monetize.

▲Changes in tech giants’ capital expenditure, source: Pacific

At present, AI applications are still in exploratory stages, with no large-scale profitable scenarios yet. Although tools like ChatGPT are popular in text-based office work, enterprise AI applications are struggling, with penetration in key industries like manufacturing and retail nearly zero.

This results in AI giants like OpenAI facing a “bottomless pit” of costs—since 95% of users are free, each inference incurs costs, and the company subsidizes most free users with revenue from a small number of paying users. As user numbers grow, economies of scale do not reduce costs but instead expand losses.

Thus, OpenAI’s announced long-term infrastructure investment of $1.4 trillion was cut to $600 billion within a few months. This figure may still be aggressive, with further reductions possible. Recently, OpenAI also shut down the Sora app, once seen as another revolutionary product.

These signs indicate that AI commercialization is not as easy or rapid as market expectations suggest, and will likely become a key factor constraining tech giants’ high capital expenditure in the future.

Moreover, tech giants’ expansion of computing infrastructure over the past few years has heavily relied on bond financing and bank loans, with very low interest rates as a key condition.

Now, with geopolitical tensions rising, oil prices above $100, and the market no longer betting on the Fed’s continued rate cuts in 2026, expectations are shifting toward possible rate hikes to curb inflation. This change in interest rate environment could add new variables to high capital expenditure plans.

In fact, before early 2026, Oracle and other tech giants faced loan freezes from multiple US banks and were downgraded by investment banks, raising doubts that AI capital spending exceeds free cash flow support. Additionally, the company’s 5-year credit default swap (CDS) spread has soared to 191 basis points, the highest since the 2008 financial crisis, sharply increasing default risk.

Oracle’s situation is not unique; it reflects growing concerns in banks and capital markets about the aggressive AI investments of tech giants.

From this, it’s clear that the future of sustained rapid growth in AI computing power faces vulnerabilities. If expectations shift, the basis for Yuanjie Technology’s high growth could be reevaluated.

Furthermore, potential shifts in market style and liquidity tightening could also pressure valuations of global AI leaders.

In the A-share market, valuations of tech, cyclical, and financial assets have experienced a long-term upward trend for over two years, remaining at high levels, while consumer and dividend assets have been relatively low in recent years. In the future, market focus may shift from growth to value.

Additionally, as global liquidity diminishes due to geopolitical tensions, AI leaders that benefited heavily from liquidity easing may also face headwinds. If the overall valuation center of global AI declines, Yuanjie Technology may find it hard to remain unaffected.

In summary, Yuanjie Technology’s rapid rise is a result of high performance growth and liquidity abundance under the AI wave. But a valuation exceeding 450 times may have already priced in a very high level of future prosperity, yet the sustainability of downstream giants’ high capital expenditure and potential macro liquidity shifts remain risks hanging overhead. The “curse” of stocks hitting 1,000 yuan will ultimately be broken by sustained high growth, but current conditions suggest significant challenges ahead.

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This article involves content related to listed companies, based on the author’s personal analysis and judgment from publicly disclosed information (including but not limited to interim and annual reports, official platforms, etc.). The information or opinions herein do not constitute any investment or business advice. MarketWatch is not responsible for any actions taken based on this article.