Co-Packaged Optics Reshaping AI Data Center Network Architecture

Co-Packaged Optics Reshapes Data Center Architecture with Design Shifts and Deployment Challenges

The data center hardware ecosystem is entering a decisive transition phase. As artificial intelligence workloads accelerate, traditional pluggable optics are approaching practical limits in power efficiency and bandwidth density. Co-packaged optics, often referred to as CPO, is now being positioned by leading semiconductor and optical module vendors as the architectural shift required to sustain scaling beyond 800G and toward 1.6T interconnects.

Major technology players are investing heavily in integrated photonics platforms to reduce switch power consumption and improve signal integrity across shorter electrical traces. Optical interconnect power consumption in large AI clusters can account for a significant percentage of networking energy budgets.

Companies such as Intel Corporation and Broadcom Inc. are pushing co-packaged architectures that bring optical engines directly adjacent to switching silicon. This eliminates long copper traces that degrade signal performance at high data rates. Firms like Intel have demonstrated integrated optical I/O prototypes designed to support bandwidth densities exceeding 4 Tbps per package. Broadcom, on the other hand, is aligning its Tomahawk switch roadmap with external optical engine integration to support AI cluster deployments.

Hyperscale data center operators are signaling significant demand. Microsoft Corporation and Google LLC have both increased capital expenditure focused on AI infrastructure. Without higher density optical interconnects, GPU clusters would struggle to scale efficiently. In February 2026, Tower Semiconductor and Scintil Photonics launched the world’s first heterogeneously integrated DWDM lasers for AI infrastructure, boosting bandwidth-dense, low-power optical networking.

Engineering Design Shifts Toward Optical Integration

The most visible change in co-packaged optics is physical proximity. Instead of inserting pluggable transceivers at the front panel of switches, optical engines are embedded alongside the ASIC. This shortens electrical paths from centimeters to millimeters, and this difference reduces insertion loss and improves thermal efficiency.

Companies like Marvell Technology Inc. are developing PAM4 DSPs tailored for co-packaged optical modules. Their product strategy is centered around enabling 1.6T architectures that hyperscalers are now evaluating for 2026 deployment cycles.

At the same time Cisco Systems Inc. is advancing silicon photonics integration through its Acacia acquisition. Cisco’s coherent optical modules have already been deployed in metro and long-haul networks. Now the focus is shifting toward shorter reach high bandwidth AI fabrics inside hyperscale facilities. This particular trend shows how telecom-grade photonics expertise is migrating into cloud data centers.

However, thermal dissipation is one of the most pressing engineering concerns. Switch ASICs already operate at power levels exceeding 800 watts in advanced configurations. Adding optical engines into the same package introduces heat density challenges that require new cooling solutions. Liquid cooling adoption is increasing partly because of this shift, not only because of GPUs.

Supply Chain and Manufacturing Complexities

Co-packaged optics demand a different manufacturing ecosystem compared to pluggable modules. Silicon photonics fabrication must align closely with advanced packaging processes. Wafer level integration, fiber attach precision, and yield optimization are all under scrutiny.

Companies like TSMC are expanding advanced packaging capabilities, including CoWoS to support high bandwidth AI chips. While primarily known for GPU packaging, these capabilities are increasingly relevant for integrated optical solutions as well. Packaging density and interposer design influence how optical engines can be co-located with switching silicon.

Investors are paying attention because data center electricity usage is becoming a regulatory and cost issue. The International Energy Agency has projected that global data center electricity consumption could double by 2030 due to AI expansion. Optical efficiency improvements are thus becoming financial imperatives.

Deployment Timelines and Commercial Readiness

Hyperscalers typically require multi-year reliability validation before committing to new architectures. Field replaceability concerns also persist, while pluggable optics can be swapped easily. Integrated optics also complicates maintenance and service models.

Companies are addressing this by designing detachable optical engines within co-packaged frameworks. Broadcom and its ecosystem partners are testing modular CPO concepts to balance integration with serviceability. Early volume adoption is expected in AI clusters where performance gains outweigh operational complexity.

Competitive Positioning and Strategic Intent

The competition is about controlling future data center architectures. Semiconductor companies want to ensure their switching silicon remains central to AI infrastructure. Optical component vendors are moving upstream to capture more value through integration.

Intel is positioning integrated photonics as a differentiator in foundry services. On the other hand, Broadcom is protecting its switching dominance by aligning optics tightly with ASIC roadmaps. Marvell is leveraging DSP expertise to capture high margin optical interconnect demand. Ayar Labs is challenging the status quo with chiplet based optical I/O. Each company is targeting power efficiency, density improvement, and long-term AI cluster scalability.

For deeper insights on integrated photonics and AI infrastructure trends, refer to the report Silicon Photonics Market Report.

The Structural Turning Point

Co-packaged optics is more than a new module format; it represents a fundamental shift in data center engineering. Power consumption per bit is emerging as the key performance metric. The scale of AI workloads is now shaping architectural decisions, influencing the semiconductor, photonics, and advanced packaging ecosystems.

The companies investing early are preparing for a future where electrical interconnects cannot economically sustain bandwidth growth. In that environment silicon photonics becomes less of an optional enhancement and more of a foundational layer in hyperscale infrastructure.