CAS Star, a Shanghai-based venture capital firm founded by Mi Lei and affiliated with the state-run Chinese Academy of Sciences (CAS), is reaping the rewards of a photonics investment thesis that stretches back more than a decade — a strategy now validated by the surging global demand for optical interconnects inside AI data centres.

Why photonics now matters to AI

Training large-scale AI models requires tens of thousands of specialised computing chips to exchange data continuously. For years, that data travelled through copper cables — but copper interconnects are hitting a hard physical ceiling: signal degradation, excessive heat, and soaring power consumption all throttle chip performance. Optical links, which transmit data using light rather than electricity, offer dramatically lower signal loss and have become central to modern data-centre architecture.

The shift is not incremental. As AI clusters scale to unprecedented sizes, the industry's reliance on photonic components — spanning light sources, transceivers, and fibre — has accelerated sharply, turning a niche scientific discipline into a high-stakes commercial race.

The CAS Star portfolio play

Mi Lei, who holds a doctorate in optics from the Xi'an Institute of Optics and Precision Mechanics under CAS, began backing photonics companies from the firm's inception. Today, more than 200 of CAS Star's roughly 600 portfolio companies operate across the broader photonics sector, covering sensing, communications, computing, storage, and display.

'New technologies can drive industrial upgrading,' Mi said from his Shanghai office — notably named 'Wallfacer', a reference to the elite strategists in Liu Cixin's award-winning sci-fi trilogy The Three-Body Problem, whose minds serve as humanity's last refuge from alien surveillance. 'Our role is to push scientific research towards commercialisation,' he added.

Market reaction: an elevenfold share surge

Yuanjie Technology, a Shaanxi-based laser-chipmaker that CAS Star invested in around 2019, has seen its shares surge more than elevenfold over the past year, fuelled by surging revenue from data-centre light-source products, according to market data. The stock's trajectory illustrates how China's equity investors are rapidly repricing optical component makers as essential AI infrastructure plays.

The broader photonics sector in China — encompassing companies such as Zhongji Innolight and Yangtze Optical Fibre and Cable — has attracted intensifying investor attention as domestic AI model developers and hyperscalers expand their data-centre footprints.

The competitive backdrop

The race to commercialise photonic computing and interconnects is global. US-based startups including Lightelligence are pursuing silicon photonics for in-chip optical computing, while established Western component suppliers compete for data-centre contracts. China's advantage, analysts note, lies in a deep domestic supply chain and state-linked research institutions — precisely the network CAS Star was built to exploit.

Export controls on advanced semiconductors have also accelerated Beijing's push to develop indigenous optical and photonic technologies, adding a geopolitical tailwind to what was already a compelling commercial opportunity.

What's next

With AI infrastructure investment showing no sign of cooling, photonics firms in CAS Star's portfolio are positioned at the intersection of two powerful forces: the physical limits of copper-based computing and China's drive for semiconductor self-sufficiency. Investors and industry watchers will be monitoring whether portfolio companies can scale manufacturing to meet hyperscaler demand — and whether Mi Lei's early conviction translates into further landmark exits.