Austin and Vik launch a new “news take” format to break down the week’s biggest stories. They dissect a proposed US ban on Chinese optical transceivers, questioning its technical rationale and market impact. The two also analyze AMD’s latest earnings and the creative financing behind Volta Infrastructure’s massive $10 billion compute deal.
Things we cover:
The proposed ban on Chinese optical transceivers
Why the malware justification doesn’t hold up
AMD’s strong earnings and surprising CapEx
Volta Infrastructure’s creative financing model
Anthropic’s massive compute needs
This podcast is lightly edited for clarity.
A New News Take Format
Austin: All right, hello everyone. I’m Austin Lyons from Chipstrat. With me is Vik Sekar from Vik’s Newsletter, and we are bringing you a news flash—a news take from Semi Doped. This is a little bit different than our regularly scheduled programming. Vik and I decided that lately, every week or so, every couple of weeks, there’s just some really interesting stuff that we’re really itching to talk about and it doesn’t always align with our schedule of when we are normally going to record.
And so we just thought it’d be fun to have these shorter news take episodes that we bring to you. So, Vik, what is it that made you want to jump on and talk this week? What are we talking about today?
Vik: It’s this whole Reuters news article about how the Trump administration is proposing to put a ban on Chinese optical transceivers. And it stirred up quite the panic in the markets because you really can’t build out an AI data center without optical transceivers and whether people realize it or not, a bulk of this entire optical component assembly stuff, including the pluggable modules, are actually assembled in China.
So, it was quite a shock to everybody and everybody was scrambling to make out what’s going on here. And at that time, I was like, I think we should just cover this at least because it’s an interesting thing to talk about because it’s just like what’s going on? What if we are cut off from optical transceivers tomorrow, what would happen or why we think it will actually happen or not happen.
So, that’s why I was like, let’s do a news flash today.
Can the US Ban Chinese Optical Transceivers?
Austin: Yes, totally, which is good. So let’s get into it. I too, I woke up and I read this and my initial reaction was, you can’t just cut these off from China immediately because you’re not going to backfill that supply immediately from the United States, right? So there would be if you shut it down, there would be a period of time where it’s just like, all right, we just have less optical transceivers. At the point in time when we’re trying to build out data centers at scales like we never have before. But yeah, walk me through your line of thinking when you read it.
Vik: All right, yeah. So if you’re watching this on YouTube, I just have the article up on the screen. So we can actually look at what’s going on here. Essentially, the news that was reported on August 4th, says the Trump administration is drafting a ban on US imports of new models of Chinese data center components as it seeks to protect the infrastructure that undergirds the AI boom.
Okay, they got some part of it right. Basically, it really is an important part of the AI boom, right? Because without optical interconnects, you can’t do any scale-out or scale across or even hook up to the data center. You can’t even do inference or training or whatever. It’s a big part of the AI infrastructure, so that’s pretty good. So the specific ban actually comes down to Chinese optical transceivers, which we’ve spoken on this podcast. It just converts light to electricity and back again because light travels much better distances at a much faster rate. So, compared to electrical transceivers, optical transceivers can connect longer distances. So, we’ve done a whole episode on this—the basics of transceivers and networking and all that—which you should check out if you’re wanting to get more into this.
The Malware Justification
Vik: So, but the whole thing was that this was the dumbest thing I saw in the article. I’m going to read this out, okay? Like after this, I’m going to ask you what do you think about this because it’s really dumb. It says “the move not previously reported, aims to prevent Chinese firms from stealing data, installing malware or disrupting service at US data centers, which house the chips to train and run AI models.”
Like, why do you think that banning the shipment of optical transceivers will prevent the stealing of data and installing of malware? It literally has nothing to do with it.
Austin: Right, right. I too was struggling to understand this and I kind of went down a little bit of a research rabbit hole to figure out like, is this even possible? The question is, if a Chinese company assembles an optical transceiver, is that actually a security risk? And so, by the way, I kind of emphasized assembles because at the end of the day, what do these optical transceivers have in them? A lot of times it’s a Broadcom or Marvell DSP. It’s re-timers, drivers, TIAs, all these various components, a lot of which actually will come from American companies, not necessarily Chinese companies. So, these particular transceiver companies—Inlight, for example, or Eoptolink or these other ones—a lot of it is the assembly and the final kind of cabling and putting everything together.
And so the question is like, well, where are they going to put malware? What are we talking about here? If they’re sourcing a lot of the components. And the one thing I could find is that there’s often like a little MCU, like microcontroller that has some firmware on it. And that firmware can be written to by the vendor. But as far as I could tell, and I would, of course, love some transceiver person in the industry to tell us more about that. I did find some links. It was like an OIF, Optical Internetworking Forum or something that had these slides. It was in our Semi Doped Daily. I should have pulled it up this morning. But it was like, okay, it is very—it’s a normal thing for optical transceiver companies to have an MCU that has firmware on it and it can be programmed. And and sometimes they make it so you couldn’t just go in and read it back out yourself to be like, what did they put on here? You know, like, I want to audit this. But it’s not clear to me that after it gets shipped, they would have any way to get in and upgrade that firmware. So it’s not like I could sell you my transceiver and then remotely connect from China and then put all this malware on it and do something.
Vik: Yeah. These pluggable transceivers don’t have too many components, honestly. They have an amplifier on the transmit side and they have an amplifier on the receive side. And then they have some conversion circuits. And that’s about it. Then you’ve got some optical connections like fiber attach units or whatever if you want to connect to the optical engine. That’s it. What else is here? Like in an optical engine, there’s nothing and then there’s like a fiber that plugs into it. There’s no malware or stealing data or whatever is going on here. Oh, you know what’s ironic about this is that they want to make this whole ban to prevent the disruption of service at US data centers.
Austin: Which the ban would do that.
Vik: Exactly. The ban would exactly do what you’re trying to avoid.
Market Reaction and Supply Chain Impact
Austin: Yeah, totally. Totally. So you do wonder, of course, with things like this, is it you kind of wonder, is it the government saying, you know, we want to continue to put pressure on China and here’s yet one other angle. It’s not Nvidia GPUs, it’s somewhere else in the supply chain. Can we put the squeeze on? Regardless of its technically sound or not. And in fact, it’s kind of a technically complicated area. So if we just tell people, hey, optical transceivers from China are bad, they could have malware, maybe most people will just believe it at face value. So you wonder how much it actually has to even be true.
Vik: Oh, speaking of Washington D.C. Yes, I’m glad you said Washington D.C. because read this next. “Transceivers definitely pose a risk,” said this person who’s an AI policy expert at Washington D.C. “As data center build out scales up, you want to make sure the data center supply chain is secure from the get-go.” Like, again, there’s nothing about security in this thing. These components have nothing in them that you can hack into or install a virus or something. You know the best analogy I have for this? It’s like saying, if you hook up this USB cable to your computer, you’re going to get a virus. It’s just a USB cable. Like why would I get a virus? Exactly. You won’t.
Austin: Right, right. Yeah, they just transmit on it. Yeah. I did find, yeah, I did find this, okay, it’s OIF, Optical Internetworking Forum and they had this webinar and there are some slides around like a little MCU on these transceivers for some little bit of firmware stuff. So there is a little bit of trusting the module vendor, but again, and we can put a link in the show notes. But again, it’s very unclear that it is an attack vector.
Vik: Yeah, there are some management services that actually go on inside. So that’s there. Yes, there are some functions that do this kind of stuff. But one other thing is that the moment the biggest company that was hit in China for this is Zhongji Inlight, right? They seemingly contribute to about 34% of the global sales of transceivers, which some analysts actually revised up from what this Reuters article calls to be 27%. So, down here it says Inlight has a leading 27% share of the global transceiver market. But some people said it’s actually a little bit more than that. And there are others too in the Chinese supply chain who make these things. And if you add them all up, they constitute about 50% of the global optical transceiver market.
That is a significant amount of supply to just ban because you can’t get these things anywhere else. And I have to explain what that means because the shares of Lumentum and Coherent and all these things and Applied Optoelectronics goes up when this news came out. But none of these companies other than maybe Applied Optoelectronics to some small fraction, actually assembles transceivers. Lumentum and Coherent are still going to make lasers, but they kind of make the hard-to-make high-end content of an optical transceiver, like the 200-gig EMLs and ultra-high power lasers that aren’t really accessible to too many Chinese modules makers or whatever. So, what the Chinese module makers actually do is they work on this very low-margin stuff, but it’s a very essential portion of the market.
And without them, you can’t have optical interconnections in the data center, right? So, I don’t know how to think about this, but ultimately, if there is nobody to package these optical transceivers into a pluggable module, then I would imagine that Lumentum and Coherent would be upset, like affected by the situation because their sales would go down. So you actually want people shipping pluggable modules, right? So, I’m not sure why Lumentum and Coherent went up as soon as Chinese ban was supposed to show up.
Austin: Yes, okay. So I had that take as well, which is like, okay, look, if there’s a fixed supply and then we take the Chinese supply off the table, that doesn’t mean that immediately Lumentum and Coherent are going to sell more. They still have a fixed supply, right? And so it’s like, okay, maybe Fabrinet and these other contract manufacturers could try to pull some supply online and then maybe that would be allocated to the Lumentums, Coherents and whoever, but none of that happens immediately.
So actually just immediately, the only thing that happens is that now we’ve traded security concerns for actually building capacity, right? And so this is actually very European in some sense, which is just like, oh no, we’re scared about something. Let’s just put a bunch of regulations and slow down the building of it whatsoever, because there could be a tiny attack vector that Austin says doesn’t really seem possible. Let’s just stop building data centers because we just cut off supply to all the interconnect cables.
Vik: Yeah. And there’s another complicated angle to this because Terrahop, which is actually the non-China arm of Inlight is actually a subsidiary of the Chinese company Inlight. But they are entirely operated out of Singapore and they don’t have anything to do with China. Like none of the parts come from China, none of the assembly happens in China. Everything happens in Southeast Asia, but now what would you do with those? Like how would you deal with Terrahop? Would you ban them? Would you not ban them? It’s very gray area. And they also said that this ban only applies to new modules. But what does new mean? These things have revisions all the time. What is new? Like a new slightly different revision V2 to V3 makes it a new product? Like changing a slight orientation of a part on a module makes it a new product? What is it? So I don’t think anybody knows. But do you actually think that this is actually going to come into play and actually last?
Austin: So I don’t think so. I don’t see. I think enough people, I mean, come on, if you’re Broadcom, Marvell, Coherent, Lumentum and everyone in the supply chain. Oh, and by the way, if you’re Microsoft Azure or OCI or anyone who’s building out data centers, like everyone’s going to literally say like, hold the phone, this is not right. This is not it. So I don’t think this is going to happen.
Vik: And I don’t think any US maker is going to—I don’t know—like Fabrinet or all these companies are going to go off and immediately say, you know, let’s start building capacity. Yeah, this is our business model because you know, before you know it, like in a few months if this reverses and then all that capacity is gone to waste, nobody’s going to do anything.
Austin: Correct. Yes. No, you make a very good point, which is like no one can proactively take action on this because it would be manufacturers who’d have to try to ramp up supply and that is a very expensive and kind of one-way door, right? You buy, you have shells, you build, you buy tools, you stand up a supply line and then all of a sudden the government decides, never mind, we’re not going to do this and you’re like, oh well, now we have all this excess capacity.
AMD’s Strong Earnings and Surprising CapEx
Vik: Oops. Totally. Awesome. I think we’ve hit on that topic pretty nicely. I don’t have anything else to say about it, do you? Let’s—No. Okay. Because we have to see how it rolls out. What’s your take on the whole AMD earning scenario? Like they seem to have posted some really good earnings but the stock fell and people are like questioning something. What’s going on there?
Austin: Yeah, yeah, yeah. So, okay, AMD, they had good earnings. They are record revenue of 11 and a half billion, up 50% year over year, 13% quarter over quarter. Their data center segment, 6.7 billion, which is up 107% year over year. And is importantly is now 58% of their total revenue. So they have shifted from a sort of consumer client PC, client graphics company to a data center company, which you would hope that they would do that, right? So they’re actively executing on that. Epyc CPU demand is good. Helios has good reception and is shipping end of Q3, Q4, Q1, right? So everything at a high level looks good. Now, the stock dropped after hours after their earnings call, and so then there was a lot of like, oh no, people must not—what don’t investors like about AMD’s earnings?
And there was a couple things that people were poking on. One, it was okay, well, how much growth is actually happening with GPUs? Obviously CPU, agentic CPU demand for Epyc is very strong. Helios is promising, but it hasn’t really shipped yet. And there were some comments about acceleration and like Stacy Rasgon, if you listen to the call, he was poking on it saying like, oh, well, is it actually not accelerating as much as possible or because there’s like quarter-over-quarter acceleration versus just like half-over-half and whatever.
There were some surprises about spending 800 million in CapEx instead of the expected maybe two or 300 million. And there are some legitimate on the one hand, some of that spend might be into their own compute infrastructure. But there’s some concern that some of that is actually needed to, for example, get supply for substrates and help OEMs and ODMs get to the finish line with these rack-scale Helios and stuff like that. And so the nuanced argument there is that it’s not so simple to be fabless anymore. Like you used to be a fabless company and not have to take on a lot of that, have that skin in the game for getting allocation to certain things. But now that it’s hard to get substrates, it’s hard to get memory or anything like that. The point is like, hey, wait a minute, AMD is supposed to be a fabless company, but they’re having to put their own money in to get allocation. But again, that doesn’t necessarily say that AMD is an unhealthy business.
Vik: I mean, Nvidia had this whole CPX thing for pre-fill, but that we never heard of it again. So maybe disaggregating pre-fill and decode into separate hardware SKUs wasn’t the greatest idea.
Austin: Well, okay, so that’s a great question and a great pushback. The solution was instead of to say, let’s have GPUs some with a lot of HBM, some without, then they actually, of course, came in and did the whole SRAM thing and said, wait a minute, what if we use the SRAM for decode and then we keep our HBM for the pre-fill? And so that would also continue to point out that AMD doesn’t really have an SRAM offering, although they did just launch or make that announcement at Advancing AI about partnering with Cerebras to sort of fill—yep, yep, to fill that out. But again, I think we’ll maybe we’ll see more from AMD here on flushing out what is their strategy, where does SRAM come in, where does GPUs with less HBM come in? So I think there’s probably going to be more coming from AMD. That that’s my takeaway.
Volta’s $10 Billion Creative Financing Deal
Vik: Okay. Yeah, that’s an interesting, interesting approach. That’s a good explanation actually. I don’t have anything to add to it, but we’ll see how it rolls out from here. Because I wanted to go on to the next piece of interesting news, which is this company called Volta Infrastructure. Have you heard of this company?
Austin: I didn’t until you texted me, to be honest.
Vik: Okay. So let me run through what this thing does. This is very—this is quite amazing to me, okay? Because there is this company called Volta Infrastructure, which is a London-based company. Not to be mistaken for another company of the same name, which is Singapore-based and also does something very similar. I was totally confused when I saw the website. Actually, I should actually pull that up because it is quite nice to see what it is that they are trying to do. And so I’m just going to share basically volta.com and go from there. Okay. So this company was very interesting only because this company has been around only for about six or seven months, okay? This company, let’s say, as old as our podcast as we record this right now, because it started it.
And they seemingly have gotten a $10 billion deal with some unknown AI lab or something, which later I think Bloomberg, was it? Yeah, reported that it’s actually Anthropic who has put in a $10 billion computing deal with this new cloud startup that’s been around only six or seven months. So you’ve got this big player coming in and just putting in a compute deal that’s worth nine figures and you’ve got this company that becomes instantly a multi-billion dollar valuation company. So I was like, wait, what does this company even do that like, how can they get a $10 billion deal in compute in six months? What can I learn from this for Semi Doped podcast, right?
Austin: Yes, yes, my original thought was like, oh man, they’re the same age as Semi Doped. Dude, we picked the wrong industry. Podcasting, you know.
Vik: I know. Why can’t we start a compute—yeah, why can’t we start a new cloud? Yeah. Okay. Let me explain the idea of this, okay? The fundamental idea behind this company is that they treat it like it’s infrastructure. And they treat this as basically institutional grade infrastructure build-out. And I had no idea what that meant, okay? So I was like, okay, let me dig into this a little bit more. And it’s interesting because whenever you borrow money to build infrastructure, which can be like roads or something that you can just get money out of on a regular revenue basis, right? Just let’s use the example of roads, right? Infrastructure debt to build out roads is very different from what you would borrow to do something like a VC or a corporate financing deal. And so the whole idea is that you treat this asset, whether it’s roads or compute, as a contracted but predictable cash generator. So it generates cash. Like a toll road collects tolls, and it’s going to continue to do so for decades. Like a power plant sells electricity for a very long time, often 15, 20 years.
The bet is that AI is not like a data center. We call it data centers, but it’s really not that because there is a lot of sharing and there’s a lot of virtualization and you get part of the compute in a data center typically in the old days. Compute is very different, like it is a token factory. It’s an AI factory. Think of it as infrastructure and that is factory. So whenever you say that I can produce revenue like collecting tolls for a long period of time, institutional lenders, right? They tend to give this loan to you at lower interest rates, which means that they are not betting on growth or some fixed outcome, but they know that you’re going to start generating revenue by collecting tolls immediately. So the cost of the capital, right? Because you are getting this at a lower interest rate, means that the person building out with them gets compute at a lower price somehow, right? So that’s where this whole thing is built out. So this is their whole idea behind building data centers, from capital to tokens, for companies like perhaps Anthropic who’s coming through the door.
Austin: Sure, totally. And I know we’re short on time, so I’ll keep my take short. So first of all, I’ll say that Jensen would be very happy to hear you talk about token factories and financing it like a utility, and that’s how he thinks about it too. So, you know, congrats on thinking the same way as Jensen. So, okay, there’s one other way that I would approach this. When I started to think about this, I thought like, okay, let’s say it’s Anthropic. Anthropic says, oh, wow, we need a bunch of Nvidia GPUs. And let me remind people that Anthropic traditionally used Trainium, and then they also said, we need more compute, and so they started using TPUs. And like nine months ago, there’s an announcement where Microsoft, Nvidia, and Anthropic said like, hey, there’s this three-way partnership, and Anthropic’s going to commit to $30 billion of Azure compute plus up to 1 gigawatt additional initially on Grace, Blackwell, and Vera Rubin. And Nvidia was investing, Microsoft investing. Okay. And so it was like, oh, wow, this is actually upside TAM for Nvidia, which I think people forgot was one of the two biggest model lab companies wasn’t actually really using Nvidia yet.
Okay, so now, let’s say you’re Anthropic and you’re like, great, we want even more Nvidia. How do you find it? Every large Neocloud and large CSP who has Nvidia compute already has customers that it’s allocated to. So where are you going to find it? Okay, well, you just maybe Jensen says, hey, I’ll allocate you some. And then you say, okay, well, I have to find power. Okay, so where do you get the power and and someone to operate it? Well, basically, in this case, this Volta is the balance sheet company that just started, but the operator is actually this crypto miner like Bitdeer or something like that. And so there’s an existing, yeah, existing crypto miner that has experience operating data centers, but they’re not going to be able to take on any of the balance sheet. They’re not going to get that low cost of capital financing. And so I think this is also just a clever way to say, let’s start a new company, clean balance sheet, and they’re going to receive the money and they’re going to be sort of like the parent, but actually they will pay Bitdeer for power and operations, and Nvidia will help make sure that some new GPUs get built and allocated and set up there, and then Anthropic can—it to me, it feels like the fastest way for Anthropic to spin up more Nvidia GPUs was essentially needing a clean balance sheet to borrow against. Someone to come in and play that role. But it is obviously, yeah, it’s financially creative.
Vik: It’s amazing. Yeah, it’s financially creative. And I’m like, wait, what’s going on? Like, people just drop like 10 billion just like that nowadays into a company we’ve never even heard of. But it’s fascinating. We live in fascinating times. It’s great. Like I have to work for a long time for that much kind of that much money, you know.
Austin: I know. But now think about if you’re Volta, you’re like, yeah, we’ve got one customer and we’ve got $10 billion. But on the other hand, it’s like, dude, you guys have one customer. Like, what’s the long-term game plan? And I’m sure the game plan is like, just keep making that customer happy as long as possible. And then maybe eventually win some other customers. But then that’s essentially every other Neocloud in the world is like, we’ve got one big customer and we’re hoping to differentiate.
Vik: That’s true. So they’re like, basically two things, right? Like, most startups can’t even say, yay, one customer, right? So one customer is amazing. So the second thing is that if the customer is like Anthropic, there’s a big customer to nail on level one, and you’ve already nailed Anthropic. Everyone is going to follow suit, right? The pack of cards, the dominoes will fall. Everybody’s going to throw compute money everywhere, and CapEx is going to continue going to the trillions. Yeah, I don’t know when this—this is very interesting, so I thought we should cover it on the podcast. Anyway, enough of that. Let’s see what happens. It’s nice to keep a tab on these kinds of creative financing deals. You know, we are not really finance guys, but I love to understand the financial creativity behind how some of these things work. Or maybe it’s just new to me. So either way, I have fun.
Austin: Absolutely. It is going to be—it is the story that’s woven through the period of history we live in right now, which is very interesting technical innovations as we move to data center scale computers, and then very interesting financial innovations to finance it all. And so with that, we’ll call this episode a wrap. Thanks for listening, guys.
