0xMerlin

I started 2 relatively small positions on $LPK and Unitika last week. Why small? 1. $LPK up 17% so far today 2. Unitika down 18% today I am building my positions slowly on both via DCA. (Like with any stock). You're never going to have the best avg. price with this method, but it helps smooth out short term volatities. And it stops me checking my account 72 times a day. Also yes, I did buy more $LPK following my "bear" thesis the other day lol.

Just for the visual learners about CPO: This is what the CPO market growth looks like from GS + $LITE transcript confirmations. There's certain names that are very high-beta correlated to CPO. Maybe... not the best idea to copy firms named after Orange Peels on $AAOI to $SNDK to short names. At the very beginning or middle of supercycles? Especially if you're retail, live in Europe, and only look at last 12 months revenue instead of forward growth.

Just reiterating my disbelief: I have never seen a sector more bullish than CPO. GS reported Optical TAM 9X from $15b in 2026 -> US$154b in 2028 CPO making up $91B of that. Starting from ~$164M (Modor for 2026 / sampling) to $91 Billion (GS 2028) 55,000%+ CPO growth curve starting from today This is exactly why algorithms / analysts mess up because they might look at TTM revenue at these CPO names. But everything happens in the next two years with $SIVE to Shunsin to MSSCorps to $SOI. This is Zero to 100 from a massive architectural shift pushed by $NVDA. I genuinely still don't think retail or markets understand what's coming yet.

“ $IQE dropped 20%. Shall I sell?! ” No. I added heavily to my position on last week's dip. Summary on why I'm adding to my $IQE position on any dip: 1. Upstream supply chain tailwinds: $IQE's photonics & GaAs segments rely on $AXTI's substrates. $AXTI guided “sequential revenue growth in Q1 2026, driven by growth in InP for the AI infrastructure build-out.” With InP backlog >$60M and plans to 2x capacity in 2026. Since InP substrates are crucial for 1.6T transceivers and CPO: $AXTI's capacity ramp directly removes any chokepoint for $IQE's photonics epi output. And still, $IQE has internal substrate manufacturing capabilities in UK/USA - which produces GaAs, InP, and GaN. 2. Downstream demand sold out: $LITE are $IQE's flagship customer (multi yr VCSEL/EML epi partner): - $LITE has its hyperscaler order book sold out through 2028. - $LITE CEO said “we’re falling further and further behind the demand” - With agreements locking multi yr visibility straight into $IQE's photonics segment. - $NVDA $2B+ investments in $LITE & $COHR signal hyperscalers are locking in capacity yrs ahead, with epi being a huge bottleneck. $LITE's VCSEL & EML epiwafers are exactly what $IQE grows on InP/GaAs. So, locked-in multi-yr volume + sold out book = multi-yr revenue for $IQE's photonics segment. Then you also have $QRVO + $SWKS as $IQE customers for GaAs/GaN epi. It’s less obvious, but $AVGO also source GaAs/GaN epiwafers from $IQE too for its RF business - even while maintaining captive InP epi capabilities for its photonics products. 3. $IQE are an irreplaceable foundry: - patents on epi wafer growth processes (GaAs, InP, GaN) - 35+ years of proprietary tuning for yield/defect control - $IQE Serves everyone ($LITE, $COHR, $AVGO, etc.) without competing downstream - Chinese players face Western export/qualification walls 4. $IQE is different to competitors (and superior): - Substrate specialists (e.g. $AXTI): Sell raw wafers and lack $IQE's IP. - Vertical integrators ( $COHR, $WOLF, Sumitomo): Do some in-house epi but still outsource for flexibility. $IQE is purely neutral foundry - broader access, no channel conflict. - Asian players (e.g. IntelliEPI): Cost-competitive in GaAs but lack Western defence quals + geopolitical risk. $IQE wins on yield, reliability, and secure supply. $IQE's differentiation is pure-play scale + IP + global compliance = “safe” supplier for customers ----- MC forecast: I personally forecast $IQE to >2x until end of 2026 to ~£1.1B MC. Driven by photonics tailwinds materialising + strong execution - $LITE's 2028 sell-out + $AXTI's capacity doubling signal sustained (and accelerating) epi demand. Then any sale of their Taiwan ops would carry a further premium on top (Board are already encouraging bids). Imo, the 20%+ drop last week was just noise r.e. Iran, and nothing to do with fundamentals.

THE 7 LAYERS OF PHOTONICS 1. Materials & Wafers (substrate layer) $AXTI, $IQE $WOLF, $COHR, $LWLG 2. Tools (fabrication layer) $ASML, $AMAT, $LRCX 3. Lasers (light generation layer) $LITE, $COHR, $LASR, $SMTC 4. Foundries (manufacturing layer) $TSM, $TSEM, $GFS, $UMC, $INTC 5. Test, Inspection & Packaging (reliability layer) $AEHR, $VIAV, $ONTO, $AMKR, $FN 6. Optics (module layer) $AAOI, $POET, $GLW 7. Networking (connectivity layer) $CRDO, $MRVL, $AVGO, $ANET, $CIEN

The current bottleneck: Transformers/Switchgear. 

Trade Idea: Long Hammond (~2.2B CAD / ~$1.5B USD) at 184 CAD. They dominate the market for: -Transformers (dry, multi year bottleneck ~23% of market), -serve to switchgear (2-3Y bottleneck) -and manufacture liquid too (5Y, larger bottleneck) 
I personally anticipate components price hikes like NAND, as $AMZN, $MSFT and others compete for allocation. 

You might have seen: “Half of US data center builds have been delayed or canceled, growth limited by shortages of power infrastructure”… Then you go further:

“To address shortages… Canada, Mexico… became the biggest suppliers of high-power transformers for AI data centers to AI data centers”

Guess who is in Canada (Guelph).. Mexico (Monterrey 3 and 4)… and the US?

Hammond

Then here’s the reason the articles cite why hyperscaler DB buildouts are falling apart: 
 “Major reason behind these setbacks is the availability of key electrical components — such as transformers, switchgear”.  Institutions are probably looking at Powell, Eaton, and others… but little do they know? Companies like these actually buy Hammond’s transformers to put inside their own switchgear (“strong sales into data centres, switchgear manufacturers")

Their market share over the transformers market is actually pretty large (eg. ~23% dry).  
The most compelling signal:

-> 122% Y/Y 2025 backlog increase. And we can infer this to be 1B+ CAD.  Eg. company achieved 898m CAD in sales in 2025, capacity ceiling. Management said close of Q3 2025 orders were valued at 53% of the entire closing third-quarter backlog. Given that Q4 2025 revenue was 254 million and the backlog is "more than doubled," we can infer a total backlog value exceeding 1 billion CAD. Also: 
“Gross margin compression last year was due to the buildout of their Mexico facility, but both gross margins are expected to increase and the facility expansions are expectied to turn into accelerated revenue Q2 2026)” which is now.

Downside is if raw material costs (copper, electrical steel) spike again, but given this bottleneck, they can price hike. 

Personal FWD P/E estimates would be ~18-21 for 2026, <15 for 2027 from volume ramp. But I think it’s possible to hit single digit fwd P/E if they do price hikes mixed with hyperscaler emergency orders. But that might get a little mixed with the new acquisition. Regardless still looks cheap. 
 Just a TLDR:  
$AMZN, $MSFT, $META, $GOOGL, $ORCL datacenter are being bottlenecked because of a lack of transformers/switchgear.

Seems like markets missed this little player with large market share, despite backlog visibility and increasing revenue from capacity expansion coming online. I personally found it pretty compelling, so I went long. Just sharing my personal thoughts, of course DYOR before making any decisions yourself.