Morgan Stanley's latest report reveals a significant overestimation in the market's expectations for Co-Packaged Optics (CPO), projecting only 23,000 units by 2026, compared to previous forecasts exceeding 200,000 units. The discrepancy is attributed to TSMC's challenges in ramping up its Photonic Integrated Circuit (PIC) capacity and yield issues. This shortfall is expected to impact key players like NVIDIA, Broadcom, and TSMC. The report also revises TSMC's CoWoS capacity forecast for 2027 from 45,000 to 40,000 wafers per month, while AllRing's anticipated 53% growth faces significant risks. Optical companies such as Lumentum and Coherent are projected to contribute less than 1% from CPO in 2026-2027. In the A-share market, companies like Tfc Communication, SMIC, and Eoptolink show limited involvement in the CPO supply chain. Morgan Stanley advises caution ahead of a potentially disappointing Q2 2027 report.