Photonics packaging market to triple in value by 2031

The market for photonics packaging - defined as the way that photonic devices are connected to each other and the outside world - is poised to triple in value to $14.4 billion over the next six years.

That’s the prediction from the Paris-based technology think-tank Yole Group, whose analysts suggest that rising demand for optical transceivers and co-packaged optics (CPO) inside AI data centers will drive most of the market growth.

Currently valued at an annual total of $4.5 billion, photonics packaging relates almost exclusively to pluggable transceiver requirements, with other applications only just beginning to emerge.

“Photonics packaging is entering a structural growth phase,” reckons the Yole team. “Historically anchored in optical transceivers for datacom and telecom, the market is now being reshaped by AI-driven bandwidth demand, the rise of CPO, and the convergence between photonics and advanced semiconductor packaging.

“As light moves closer to logic, architectures evolve toward 2.5D and 3D integration, heterogeneous integration of PICs and EICs, and tighter fiber-to-chip coupling schemes. This shift increases packaging complexity, elevates its strategic value, and moves innovation upstream toward design and platform-level integration.”

CPO inflection point

By 2031, Yole predicts that transceivers alone will drive $8 billion of photonics packaging requirements, with CPO-driven demand surging to around $5 billion from virtually a standing start today.

Other applications will drive smaller sub-sectors, with display engines for augmented reality (AR) poised to deliver $1.5 billion, frequency-modulated continuous-wave (FMCW) lidar for autonomous vehicles hitting $175 million, and further uses emerging.

“Beyond AI networking, photonics packaging is expanding into new frontiers,” stated Yole. “In AR, microLED hybridization, CMOS backplane integration, and ultra-compact optical engines position packaging as a key differentiator for form factor and performance.

“In quantum technologies, whether based on photons, ions, or atoms, ultra-low-loss fiber alignment, high-density laser integration, and extreme precision assembly redefine packaging requirements.”

However, CPO appears set to become the critical driver of market growth, with Yole set to host a live webinar dedicated to the topic alongside semiconductor equipment giant Lam Research on April 28.

Yole analyst Raphaël Mermet-Lyaudoz said: “CPO is reaching a key inflection point, driven by both bandwidth scaling needs and energy efficiency requirements. Understanding the ecosystem, technology challenges, and market dynamics is essential to unlock its full potential.”

Lam’s VP of specialty technologies David Haynes added: “As AI workloads continue to scale, silicon photonics is becoming essential to deliver the bandwidth and energy efficiency required by next-generation data centers.

“Enabling these technologies requires advanced semiconductor manufacturing capabilities to support some of the most demanding processes in the industry.”

Yole says that webinar participants will hear Lam Research provide a deep-dive into silicon photonics manufacturing challenges and solutions, highlighting how advanced fabrication processes are enabling scalable and manufacturable CPO architectures.

For more information about the event, which will conclude with a live question-and-answer session featuring experts from both organizations, visit the registration page: