Silicon photonics is taking over how AI data centers move data, and that is good news for TSMC and Taiwan's chip supply chain.

• TSMC expects silicon photonics to hold more than half the optical communications market by 2027.
• AI models are growing so fast that networks are hitting physical limits, and the whole data center now acts as one computer.
• Sales of optical transceivers, the parts that send data as light, grew 25% last year and are expected to grow 50% more this year.
• Doubts about co-packaged optics are fading as real-world results come in, and some makers will start mass production in the second half of this year.
• Taiwan's chip industry can build these light engines at scale, but lasers, fiber, connectors, and testing still have to keep up.

Outlook: Expect more co-packaged optics production announcements this year as AI data center buildouts push demand higher.