I always assumed faster compute means faster AI. The more chips we added to data centers, the faster and better results we would see.
Turns out that’s only part of the story.
The AI infrastructure today looks less like a collection of processors and more like a giant communication network. Thousands of GPUs spend much of their time exchanging information with one another than just processing.
The bigger these clusters, the more time they spend talking. Which means AI doesn’t just need faster chips. It also needs faster networks. And that’s where things start getting interesting. Because this demand is suddenly making a relatively unknown material incredibly important:
Indium Phosphide (InP).
Indium Phosphide isn’t new. Most telecom networks use it to move data through optical fibres. The material is excellent at generating and detecting light, which makes it a critical component in optical networking systems. InP based semiconductors convert data packets into light before sending into the optical cable and at the other end, the similar semiconductor is used to capture light and transform back to data. It essentially powers long distance communication.
But AI found a much larger use of it.
Data centers are incredibly data hungry. They transmit huge amounts of data each second requiring lightning-fast networking. As networking speeds move from 400G to 800G and eventually toward 1.6T, Indium Phosphide based equipment become critical.
The material became so critical that NVIDIA has invested in a company called Coherent which focuses on building InP solutions itself. The current supply chain also is so concentrated that two companies, AXT and Sumitomo account for almost 80% of the global InP substrate manufacturing. On the upstream side, China controls about 70% of Indium production. Which exposes to the geopolitical risks.
China recently put export controls on Indium based products essentially bottlenekcing the Indium Phosphide supply chain. They put a licensing restriction on the indium based products. The last reported license for export took over year to get. The challenge is so large that Coherent’s CEO to mention this as the biggest crisis they face.
Paul Triolo, partner at Albright Stonebridge group recently noted - Beijing is increasingly using upstream materials rather than finished products as strategic leverage. Instead of restricting photonics equipment directly, it can influence the compounds, substrates, and metals that determine how quickly the industry scales.
What’s most interesting is the second order impact this export control is having.
With diminishing supply, the demand gap is increasing and with that the Chinese opportunity. The restrictions are allowing Chinese companies invest in the technology and supply chain and capture part of the value chain.
Investment are up across parts of the domestic InP ecosystem in China. Companies such as Yunnan Germanium and Guangdong Xianrui are expanding capacity. There are many new small players coming up to capture this space.
What I found most interesting isn’t the export controls or even the supply chain concentrations. It was how interconnected and interdependent everything has become.
One small material has the capacity to slowdown the entire AI rollout. We just don’t know how many such items exist.
Minerals in Motion is read by investors, operators, policymakers, and builders tracking the structural shifts reshaping critical minerals.
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