2026 IP&E Outlook: What’s Powering the Next Wave?

What’s Changed/What’s New?

• Aggregate reads improved; 4Q tracking ahead on AI/Mil/Aero upside. Seasonal 1Q outlook, ex-AI, firming on Oct orders uptick.
• AI demand reads improving M/M on feedback of upward revisions from most customers/programs for 2026 and beyond.
• Google 2026 TPU rack forecasts revised higher by >20% to 60K vs 48K prior. Estimating TPU connector TAM growing by >60% Y/Y in 2026 driven by ~50% increase in rack units and >10% increase in content tied to adoption of higher ASP ACCs in 2H26.
• Odds of VR144 backplane reverting toward a bi-directional design increasing on recent SerDes improvements. Contingencies remain but potential to avoid the double-density design.

Top 3 Channel Comments:

• Nivida has recently made progress on the SerDes required for bi-directional connectivity, which would allow it to avoid doubling the cabled-backplane density in VR144. The remaining gating factors appear to be the bi-directional connector readiness and long-reach signal integrity, but we think the odds have shifted to roughly 55/45% in favor of bi-directional design over double-density backplanes.
• We think CPO, NPO, and CPC will all coexist in the near future because end customers have different requirements. CPO is likely to enable scale across, while the other technologies are likely to be used inside the rack, at least until CPC reaches its limit. We have seen a lot of CPC designs with flyovers recently that should extend the lifecycle of copper.
• Nvidia’s just shared with us its latest optics outlook, projecting a ~20× increase in InP (Indium Phosphide) wafer TAM demand from 2026 to 2030 reflecting expected acceleration in optical content across scale-up, scale-out, and scale-across.

Other Key Takeaways:

• CPC designs viewed gaining momentum across programs/customers validating CPC’s market relevance.
• CPC/CPO/NPO expected to coexist near term, with CPC/NPO favored for scale-up and CPO for scale-out/across. Copper projected to hit limits past 448G (2028+), potentially ceding its share to optics LT, though copper’s durability shouldn’t be underestimated.
• AEC TAM forecasts robust for 2026, with units potentially doubling Y/Y, approaching high single to 10M across PCIe /Ethernet. Market seen as structurally large enough to support multiple suppliers with no signs of aggressive pricing actions to date.
• Initial optics feedback also bullish, anchored by Nvidia projecting a 20× rise in market demand by 2030. Supply noted as tight NT, 1.6Tb design momentum strong, with feedback of broader DSP share shifts toward AVGO at Asian module suppliers.
• Signs remain of potential inventory build across Nvidia /AWS supply chains, though feedback remains universal that the dynamic has not resulted in any material changes to orders or robust 2026 expectations.
• Auto reads stable M/M. Asia leads, West still lags. Americas mix seen shifting to ICE; Europe recovery not expected until 2H26.
• Industrial reads mixed with stable to modest increase projected into 2026. Mil/Aero reads still constructive on strengthening EMEA outlook driving some incremental supply tightness for Mil/Aero SKUs. Amphenol/TE expected to push larger than typical low to mid-single digit Jan price increase in distribution to offset metal cost inflation.

IP&E fundamentals remain positive and broadly unchanged M/M, with AI continuing to drive sector strength and a more muted but healthy recovery across non-AI end markets. As 2025 winds down, the 2026 outlook appears similar: strong IP&E fundamentals supported by continued robust double-digit AI growth and a mid-single-digit recovery across other markets. We continue to track AI inventory levels and non-AI end-demand signals for indications of additional upside or emerging risk in 2026.

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