AI-Powered Backbone Networks Drive North American Optical Transmission Market to a 40% Surge in Q2 2025

The global optical transmission market saw a remarkable recovery in Q2 2025, with North America leading the charge. According to Cignal AI's "Transmission Equipment and Markets Report for Q2 2025," the market expanded by 9% year-over-year, generating $3.8 billion in revenue. However, the North American optical transmission market experienced a much sharper increase, surging by 40% in response to the growing demand for AI-powered long-haul backbone networks.

This surge can be attributed primarily to cloud and colocation vendors, which have emerged as key drivers of the market rebound. The growing reliance on artificial intelligence (AI) technologies in data centers and communication infrastructure, including advanced AI network switches, is reshaping the landscape of optical transmission, pushing forward the demand for more robust, high-capacity optical networks.

Key Market Drivers: Cloud, Colocation, and AI Integration

Cloud and hosting service providers have been instrumental in the market's resurgence. Ciena, a major player in optical networking, has seen nearly 40% of its revenue come from this segment. The company’s WaveLogic 6e technology and 400ZR/ZR+ modules have experienced significant demand, with shipments increasing by over 50% quarter-over-quarter. These technologies are key enablers for cloud providers who are looking to upgrade their networks to meet the demands of AI applications and massive data transfers.

Similarly, Nokia, following its acquisition of Infinera, reported a 50% growth in its cloud customer revenue during its first full quarter of the acquisition. The company also secured new orders for its 800ZR+ pluggable modules designed for regional AI clusters, further cementing its position in the AI-driven optical transmission market.

Cisco, another major player, reported a 31% increase in revenue from cloud operators, reflecting the broader trend of rising demand from hyperscale data centers. These data centers, which are critical to AI workloads, have been a driving force in the optical transport market, pulling it out of the slump experienced in 2024.

Kyle Hollasch, principal analyst at Cignal AI, commented: “Hyperscale data center operators almost single-handedly pulled the optical transport market out of its 2024 slump. Cloud operator spending hit record highs, while service provider growth was driven by strong demand for managed fiber networks to meet AI-related connectivity needs.”

North American Optical Transmission Market Growth

North America, in particular, has seen accelerated demand for optical transmission equipment. Operators in the region have been placing substantial orders, with many vendors reporting strong book-to-bill ratios for the quarter. The rise of AI-powered applications and the urgent need for high-speed, reliable connectivity to support AI workloads have fueled this demand, propelling North America's optical transmission market to a 40% growth in Q2 2025.

This growth has been driven not only by hyperscale data centers but also by the broader trend of AI integration in telecommunication infrastructure. The need for faster, more resilient long-haul networks that can handle the large data volumes associated with AI is prompting operators to invest heavily in advanced optical transmission technologies.

Global Optical Transmission Trends

Globally, the optical transmission market (excluding China) saw a 15% increase in sales year-over-year, with cloud and hosting operators contributing nearly $1 billion to the market. Communication service providers, who had been holding back purchases during a period of inventory digestion, resumed their investments in optical transmission equipment, helping to push the market forward.

Cloud and hosting operators now account for 20% of all direct optical transmission spending. This does not account for their significant investments in self-built or leased capacity from service providers, which further highlights the growing importance of cloud infrastructure in the optical transmission market.

One noteworthy trend is the ongoing shift in the metropolitan area Wavelength Division Multiplexing (WDM) market. Due to the rise of IP-over-DWDM pluggable optical modules in routers, traditional optical transmission equipment for metropolitan areas has seen historically low demand. It’s estimated that this market shift could account for a loss of approximately $2 billion annually, as operators increasingly rely on more flexible, cost-effective solutions that can be integrated within existing router infrastructures.

Challenges and the Road Ahead

While the optical transmission market is showing strong growth, challenges remain. The ongoing uncertainty around tariff policies and rising costs for certain vendors could potentially affect future market dynamics. However, despite these challenges, suppliers and customers have not yet adjusted pricing or order volumes in response to these factors, which could indicate a period of stability for the market in the near term.

Despite these uncertainties, the integration of AI into optical transmission networks is expected to continue to drive growth in the coming years. As AI technologies evolve and become more widespread, the demand for high-performance, low-latency optical transmission solutions will only increase, benefiting both operators and equipment vendors alike.

The optical transmission market is experiencing a profound shift, driven by the rise of AI-powered long-haul backbone networks. North America's market has surged by an impressive 40% in Q2 2025, led by hyperscale cloud operators and communication service providers. With demand for AI-related connectivity continuing to grow, the optical transmission industry is poised for continued expansion as it adapts to the needs of a data-driven, AI-powered future.

By Jennifer Tseng

Hi, I'm Jennifer, Marketing Executive at lanaotek.com.

I specialize in translating cutting-edge optical and Ethernet transmission technologies into clear, valuable insights that help our customers stay ahead in a fast-evolving digital world.

By turning complex technical concepts into practical, business-driven content, I aim to empower decision-makers with the knowledge they need to make confident, future-ready choices.