B. Riley warns AI network flattening could crush traditional transceiver demand

The optical transceiver market was supposed to be one of the clearest beneficiaries of the AI infrastructure boom. B. Riley Securities just threw cold water on that thesis.

The investment firm flagged two specific innovations, Amazon’s Resilient Network Graphs (RNG) architecture and OpenAI’s Multipath Reliable Connection (MRC) protocol, as emerging structural headwinds for transceiver market growth. The core problem: both technologies flatten data center networks, which means fewer networking devices, fewer hops between nodes, and ultimately fewer transceivers needed per facility.

What RNG and MRC actually do

Traditional data centers use what’s called a “fat-tree” architecture. Data moves up through layers of switches and routers before moving back down to its destination. Every layer needs transceivers to connect devices.

Amazon’s RNG creates a flatter mesh where data can take more direct paths between endpoints. The results are striking: a 69% reduction in router counts, a 33% increase in throughput, and a 40% decrease in power consumption. RNG became the default architecture for new AWS data centers by April 2026.

OpenAI’s MRC protocol, released at the Open Compute Project event on May 5-6, 2026, enables data transfers across numerous paths simultaneously. When one path fails, traffic reroutes instantly, promoting rapid failover without the redundant hardware that traditional designs require.

The market math gets complicated

The optical transceiver market is projected to reach $112 billion by 2031, with AI-driven segments expected to hit $26 billion by 2026. B. Riley’s argument isn’t that transceivers are going away. It’s that demand is concentrating, and the economics are shifting beneath the feet of legacy suppliers.

The winners in this new landscape are companies building the highest-speed transceivers, think 800G and 1.6T modules, and especially those innovating in silicon photonics and co-packaged optics. The losers are legacy transceiver manufacturers who built their businesses around volume sales into traditional fat-tree deployments.

Why this matters beyond transceivers

A 40% reduction in power consumption isn’t a nice-to-have. It’s a competitive advantage worth potentially hundreds of millions of dollars annually across AWS’s global data center fleet.

RNG is now the standard for every new AWS facility. OpenAI open-sourced MRC through the Open Compute Project, which means other cloud providers can adopt it too.

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