TSMC expects light-based chip technology to take over data center networking within two years, a bullish signal for Taiwan's chip supply chain and for AI hardware demand.

• Silicon photonics — moving data with light instead of copper wires — should hold more than half the optical transceiver market by 2027.
• AI is the driver: transceiver sales grew 25% in 2025 and are expected to grow 50% again in 2026, as the computing unit becomes the whole data center rather than one server.
• Doubts about co-packaged optics, which puts the light engine right next to the chip, are fading, and makers are starting mass production in the second half of this year.
• Taiwan's chipmaking base can build these light engines at scale, but lasers, fiber, connectors, and testing are still bottlenecks.
• A new silicon photonics industry alliance aims to link design, local manufacturing, and global buyers to clear those bottlenecks.

Outlook: Expect a fast ramp in co-packaged optics orders through 2026 and 2028, with Taiwan's supply chain the main beneficiary if the non-chip pieces keep up.