History always repeats itself: Can the long-term cycle of fiber optics continue, with capacity expansion being the biggest concern

The fiber optic industry is standing at a familiar crossroads. Demand recovery is driving prices higher, and stock prices are rebounding sharply, mirroring the start of the upward cycle from 2017 to 2018.

However, history clearly shows how prosperity at that time was abruptly halted by overcapacity. Whether this cycle can have a different outcome largely depends on the self-discipline of supply-side players.

According to the latest research report from UBS, the share price of Yangtze Optical Fiber and Cable (YOFC) has continued to rise this year, closely following the upward trend of fiber optic spot prices.

The current price rebound began in the second half of 2025, with the main drivers being tighter supply due to surging data communication demand, recovery in overseas telecom markets, and new demand from fiber drone applications.

UBS analyst Jasmine Huang maintained a “Neutral” rating on YOFC in a report released on March 9, with a 12-month target price of RMB 140.

This cautious stance reflects ongoing vigilance about the risks of capacity expansion—although no major expansion announcements have been seen yet, this risk remains a Damocles sword hanging over the industry.

Historical Reflection: The Rise and Fall of the Last Cycle

Looking back at the upward cycle of 2017 to 2018, the core drivers of sustained fiber price increases were large-scale 4G network construction and FTTH deployment, with supply relatively tight, causing prices and YOFC’s stock to rise in tandem.

The turning point came around mid-2017. At that time, many expansion plans were announced, but strong demand growth limited investor concerns about potential oversupply.

However, the subsequent rollout of 5G demand was much slower than expected, and large-scale capacity was largely deployed by the end of 2018, sharply reversing the supply-demand balance, leading to a significant drop in fiber prices and a corresponding plunge in YOFC’s stock.

This history clearly reveals a pattern: YOFC’s stock price is highly correlated with fiber spot prices, and the key driver of price movements is always the relative change in supply and demand.

This Cycle’s Rebound: Demand Driven with Supply Constraints

Compared to the last cycle, this price recovery features different structural characteristics.

On the demand side, more diverse sources of incremental demand include surging data communication needs as the main engine, moderate recovery in overseas telecom markets, and emerging demand from fiber drones.

On the supply side, after years of decline, the industry’s overall capacity remains relatively stable, in some cases even contracting. UBS forecasts:

YOFC’s revenue will jump from about RMB 12.197 billion in 2024 to approximately RMB 14.087 billion in 2025, further rising to about RMB 17.8 billion in 2026.

EBIT profit margin is expected to increase from 7.6% in 2024 to 10.1% in 2025, reaching 12.7% in 2026.

Net profit is projected to recover from RMB 676 million in 2024 to RMB 936 million in 2025, and further grow to about RMB 1.58 billion in 2026.

The biggest variable: the pace and timing of capacity expansion

UBS’s report clearly states that whether this price increase can be sustained depends critically on the speed and scale of capacity expansion. If supply-side players maintain self-discipline, fiber prices are likely to stay within a healthy range; otherwise, aggressive expansion could trigger a new oversupply cycle, repeating the history of 2018–2019.

Currently, UBS’s channel research has not found major capacity expansion announcements, considering the current risks manageable. Meanwhile, the painful lessons from the last cycle have made fiber manufacturers generally cautious, preferring to delay large-scale capital investments until demand sustainability is more fully validated.

However, UBS also emphasizes that aggressive capacity expansion remains a key downward risk that requires ongoing monitoring.

Investor Divergence: Consensus on Fundamentals but Disputes Over Resilience

Since Q4 2025, market attention on the fiber sector has significantly increased. UBS observes that investors generally agree on the improving supply-demand outlook and the industry’s bottoming, but debates focus on two main points:

First, how much profit margin expansion can fiber prices bring?
Second, whether aggressive capacity expansion will trigger a new oversupply cycle.

Buy-side profit expectations are not yet fully aligned—UBS forecasts EPS of RMB 1.91 in 2026, while the market consensus is RMB 2.10; for 2027, UBS projects RMB 3.04 versus RMB 2.92 consensus.

Recent price increases have led to upward revisions in earnings forecasts across institutions, providing some valuation support. However, at this stage, stock prices still face high volatility, and market sentiment remains a significant factor.

Risk Warning and Disclaimer

Market risks are inherent; investments should be cautious. This article does not constitute personal investment advice and does not consider individual user’s specific investment goals, financial situation, or needs. Users should determine whether any opinions, views, or conclusions herein are suitable for their circumstances. Investment carries risks, and responsibility rests with the individual investor.