As cloud datacenter intra-datacenter traffic continues to accelerate at a rapid pace (>25% CAGR) driven by increasing data consumption and increasing compute requirements of new complex compute/AI workloads, it’s driving higher networking bandwidth requirements. Intra-datacenter optical connectivity plays an integral role within datacenter networking infrastructure moving data back and forth between the servers/switches. However, given the Moore’s Law–like cadence in the switch performance (i.e. Broadcom switch silicon performance doubles every two years), traditional optical modules/transceivers are being stretched near physical limitations and are increasingly becoming a bandwidth/performance, cost, and power consumption bottleneck. Reflective of this growing issue, there have been strong focus and development efforts on silicon photonics (integrating semiconductor and photonics components onto a single substrate/package) and the evolution towards co-packaged electro-optic solutions (eliminating the optical module—moving photonics chips and fiber directly/close to switch chip). We believe this trend will be a key pillar in driving the optical interconnect industry going forward especially for hyperscale datacenter customers, which require continuous network bandwidth improvement to accommodate the increasing data consumption and compute requirements. In this report, we discuss silicon photonics adoption, and the evolving trend towards co-packaged electro-optic solutions, the factors and benefits driving the adoption, and the implications for our semiconductor companies and the broader semi-ecosystem. Overall, we believe the combined silicon photonics and co-packaged electro-optic solutions market is nearing an inflection point and will be a $1.1B opportunity by 2024 (off of a very low base level in 2020). We believe the move towards silicon photonics and custom/merchant co-packaged electro-optic solutions is a clear positive for the semiconductor value-chain and that Broadcom (OW), Intel (OW) and Marvell (NR) will be the biggest beneficiaries of this evolving trend as these companies have driven strong investments and have demonstrated solutions in this fast-growing market opportunity.