Optical Fibre: From Distress to Structural Demand – A Turning Point for Connectivity Infrastructure

Globally, the discussion around optical fibre has been stuck on one simple narrative

that there is abundant capacity and therefore limited pricing power. It sounds reasonable at first glance, but the story on the ground looks very different.

A very high share of installed optical fibre capacity is in China, and many markets, including the US, Europe, and India, have introduced procurement norms and trusted-vendor requirements for critical infrastructure. This means usable capacity is structurally tighter than headline global figures suggest, especially when national security, supply diversification and policy compliance come into play.

This disconnect betweenapparent capacity and economically usable supply is the first lens through which we need to interpret the recent price recovery and demand surge.

(Source- Xylem Investment Research)

What Happened Over the Past Two Years?

The optical fibre industry went through a tough, drawn-out correction. Telecom and broadband capex slowed as operators digested inventory, and average selling prices declined across regions. Inventory destocking pushed many manufacturers into cost-cutting and margin compression mode.

But the worst of the cycle is likely behind us.

Evidence from fiber pricing out of China, the global centre of fibre manufacturing, and 

industry commentary now suggests that prices have stabilised and are beginning to tick upwards after hitting multi-year lows. This price recovery, while gradual, indicates that inventory drawdowns are largely complete and demand is re-emerging.

(Source - Futunn.com)

Management Commentory

Statements of Wendell Weeks,CEO, Corning Incorporated in Q4  FY2025 Concall

"If we could make more of these new products, we could sell more... We are experiencing remarkable demand for our innovations and manufacturing capabilities."

"The optical fiber market is experiencing supply constraints, which could impact our ability to meet demand."

"Whenever we create this much value, usually some of that value creation will end up accruing to our shareholders... we would expect our profitability to improve."

Ankit Agarwal, Managing Director, Sterlite Technologies in Q3 FY2026 Concall

"this is a business where if we operate with the right utilizations of 70% plus, we are confident that ultimately, this is a business that should be 20% EBITDA margins"

Sudhir N Pillai, MD, Corning India, on CNBC-TV18

"A typical AI data center has 10x more fiber... vis-a-vis a typical data center that we are used to see. So we could anticipate this trend about many years back and we have been inventing product for AI data centers."

"A lot of glass is required Ashmit. I can tell you that it's a lot of glass and we are all working hard to make sure that we can fulfill those demand."

Market Signals: Stocks Are Moving Ahead of Headlines

Price recovery is one thing, market pricing is another.

Take Yangtze Optical Fibre and Cable (ticker 06869 on HKEX) as an example. After an extended period of sideways movement, the stock broke out strongly towards higher ranges, posting new multi-month highs with increased volume, a classic signal that sentiment is shifting from bearish to bullish.

Likewise, Corning Incorporated has seen a sustained uptrend in its share price, moving 

firmly above long-term consolidation levels and reflecting improving expectations for fibre demand.

In markets, price often moves before fundamentals do and in this case,

the signals from various sources are coming together.

Structural Demand: Government Capex Is a Big Deal

Where we see the next leg of demand coming from is not purely cyclical telecom upgrades,but policy-driven infrastructure programmes.

In the US, the Broadband Equity, Access, and Deployment (BEAD) programme allocates approximately USD 42.5 billion to expand high-speed broadband infrastructure across underserved areas, with a significant chunk reserved for fibre deployment. This is not incremental demand, it is a once-in-a-generation funding push that reshapes the economics of rural and semi-urban broadband build-outs.

On the other side of the world, India’s BharatNet programme, one of the largest rural broadband initiatives globally, is systematically extending optical fibre connectivity to Gram Panchayats and villages under the Digital India and Make in India umbrellas.

BharatNet aims to connect nearly 250,000 Gram Panchayats and over 600,000 villages with optical fibre, making it one of the largest public broadband networks in the world.

Government programs ensure long-term, committed budgets for optical fibre projects, creating a stable, structural demand.

(Source- Xylem Investment Research, broadbandusa.ntia.gov)

Data Centres: The Unsung Demand Engine

If government programmes give long-term visibility, data centres especially those driven by AI and hyperscale cloud workloads provide exponential demand acceleration.

(Source- Xylem Investment Research)

Modern data centres consume optical fibre at vastly higher rates than traditional telecom networks. AI GPU clusters, high-density racks and multi terabit interconnects require far 

more fibre, and hyperscale operators are investing aggressively to meet this demand.

Indian corporates are responding accordingly, committing significant capex for data centre build-outs domestically. Many of these investments have been publicly announced, with companies planning gigawatt-scale facilities and multi-year build-outs, often encouraged by policy incentives and tax benefits for local infrastructure development.

With India positioning itself as a data centre hub and offering favourable tax regimes for companies that invest in domestic data infrastructure, the case for optical fibre being locally sourced and manufactured strengthens further.

This is structural, long-duration demand, not speculative, and tied to broader digital growth.

Xylem Investments: Why We Focus on Fundamental Tells

At Xylem Investments, our research philosophy is simple: identify structural inflection points early, backed by data, and align portfolio allocations accordingly. We are deeply focused on sectors where policy, secular demand and capacity constraints intersect and optical fibre fits precisely within this frame.

Driven by deep research and disciplined execution, the aim is not to chase cyclical rebounds, but to identify long-duration structural demand vectors that are under-appreciated by the market. The intersection of BEAD, BharatNet, hyperscale data centre capex and supply shifts is exactly such a vector.

Understanding upstream and downstream implications, and positioning into high-quality businesses exposed to these tailwinds, aligns with our risk-first, long-term wealth creation philosophy.

Putting It All Together: From Cycle to Structure

Here’s how the optical fibre demand story is reshaping:

1. Downcycle is likely behind us.

Inventory destocking is tapering and pricing signals are stabilising.

2. Market pricing often leads to fundamentals.

Breakouts in key fibre stocks reflect improving expectations.

3. Government capex programmes are massive and multi-year.

BEAD and BharatNet aren’t one-off tenders; they represent structural build threads.

4. Data centres are accelerating demand exponentially.

AI and cloud workloads are forever changing fibre consumption patterns.

5. India’s policy environment favours local sourcing.

Tax incentives and data centre incentives make a compelling case for domestic fibre supply chains.

What looked like a cyclical recovery is increasingly looking like the start of a longer structural growth phase for optical fibre and associated infrastructure.

If you'd like to discuss your portfolio or explore how Xylem can help you navigate this market, consult with us here.