The next silicon? AI data centre material faces price spike amid China supply crunch

Beyond GPUs and memory chips, the rapid AI buildout is sparking demand for indium phosphide, a substrate used to power next-generation optical transmission

The artificial intelligence boom is driving demand for optical modules that enable ultra-fast data transmission in data centres, with the latest beneficiary a chemical compound that is seeing an unprecedented surge in prices.

Indium phosphide (InP) is used to make lasers that convert electrical signals into light, allowing data to travel rapidly through fibre-optic cables.

As a major producer of the material, China has seen prices climb sharply. According to a recent report by financial services firm Nomura citing industry experts, two-inch InP substrates surged to as much as 880 yuan (US$130.54) per wafer in June from as little as 500 yuan at the end of 2025. Over the same period, three-inch wafers rose to about 3,200 yuan from about 1,800 yuan.

An InP index compiled by financial information provider Wind, which tracks stock prices across more than 20 firms listed in mainland China, gained 4.2 per cent on Monday, steeper than some high-profile technology segments including lithography and semiconductor materials.

The industry was also mulling further price hikes that could reach 10 per cent in the fourth quarter of the year, according to a Monday report by Taiwan newspaper Economic Daily News.

Other Asian suppliers have followed suit. JX Advanced Metals, one of Japan’s leading InP substrate producers, was introducing a first round of revisions that could raise prices to two to three times previous levels, according to a report by JPMorgan earlier this month.

The investment bank said customer inquiries continued to exceed the company’s planned production capacity expansion.