U.S. Eyes Ban on Chinese AI Data Center Components

The Trump administration is preparing restrictions on Chinese-made optical transceivers, a critical component in AI data centers, according to a Reuters report citing four people familiar with the matter. The Federal Communications Commission is drafting the measure and aims to introduce it this year, though the proposal could still be modified or abandoned.

The restrictions would apply only to new models of the equipment, not force removal of components already installed in existing infrastructure.

Why it matters

Chinese manufacturers currently supply approximately 64 percent of the world's data center transceivers—the optical components that enable high-speed data transmission between servers. If implemented, these restrictions could create immediate supply challenges for American AI companies at a time when data center capacity is already constrained. Industry experts warn that Western competitors may need years to scale production sufficiently to replace Chinese capacity, potentially slowing the buildout of AI infrastructure in the United States.

Primary target: Zhongji Innolight

The restrictions would most directly impact Zhongji Innolight, which captured roughly 27 percent of global data center transceiver revenue in 2025, according to Counterpoint Research. The United States accounted for 61.7 percent of the company's first-quarter revenue, making American customers its largest market.

The timing is notable: Zhongji raised $6.8 billion in Hong Kong's largest share sale of the year just days before the Reuters report. At the July 30 listing ceremony, company founder and current chairman Liu Sheng said AI was reshaping the global industrial landscape. The company plans to use the proceeds for research, factory expansion, supply chain improvements, and acquisitions.

In June, the Pentagon added Zhongji to its list of companies identified as Chinese military companies. Zhongji responded that the designation lacked factual or legal basis and had not caused significant order cancellations or delays. The company did not immediately respond to questions about the proposed FCC restrictions.

Market reaction and capacity concerns

Investors immediately bid up shares of potential Western beneficiaries. By mid-morning Tuesday, Applied Optoelectronics had gained approximately 20 percent, Coherent was up 14 percent, and Lumentum had risen more than 10 percent.

However, the Reuters report notes that Western suppliers may not be able to fill the gap left by Chinese manufacturers, at least not quickly. The scale of Chinese production capacity in optical transceivers has grown substantially in recent years, and building equivalent manufacturing infrastructure in the United States or allied countries would require significant time and capital investment.

The proposed restrictions represent the latest escalation in U.S. efforts to limit Chinese involvement in critical technology supply chains, particularly those supporting artificial intelligence development.

These details were first reported by Reuters.