Subsea Decoupling: Navigating Opportunities and Risks in Cybersecurity and Infrastructure Resilience

The U.S. Federal Communications Commission's (FCC) ban on Chinese technology in undersea cables—effective as of late 2024—has triggered a seismic shift in global digital infrastructure. By prohibiting entities like Huawei, ZTE, and China Mobile from participating in U.S.-linked submarine cable projects, the FCC has catalyzed a strategic realignment of the $250 billion undersea cable market. This move, framed as a national security imperative, has created both opportunities for Western firms specializing in secure infrastructure and risks for businesses reliant on Chinese-controlled networks. Here's how investors should navigate this landscape.

The Decoupling Playbook: Where to Invest

The FCC's actions have created a clear demand for Western firms capable of delivering secure, resilient undersea infrastructure. Three sectors stand to benefit most: cybersecurity, submarine cable manufacturing, and maritime surveillance.

1. Cybersecurity: Building Digital Firewalls

The ban underscores the vulnerability of undersea cables, which carry 99% of global internet traffic. Western cybersecurity firms are now positioned to monetize the need for end-to-end encryption, hardware validation, and threat detection in submarine cable systems.

Ciena, which owns the submarine cable specialist TE SubCom, is a key beneficiary. Its expertise in high-capacity, fiber-optic systems aligns with the U.S. push to replace Chinese equipment. Meanwhile, cybersecurity leaders like Palo Alto Networks (PANW) and CrowdStrike (CRWD) could see rising demand for network monitoring tools tailored to submarine infrastructure.

2. Submarine Cable Manufacturing: The New "Dig Once" Play

The FCC's rules will accelerate the replacement of Chinese-made cables, creating a multiyear tailwind for Western manufacturers. Firms like TE SubCom (part of Ciena) and HPE (HPE)—which supplies undersea networking hardware—are well-positioned to capture market share.

HPE's role in high-performance computing and data center infrastructure could be amplified as companies seek U.S.-based alternatives to Chinese suppliers.

3. Maritime Surveillance: Eyes on the Deep

The FCC's crackdown also highlights physical threats to cables, such as sabotage incidents near Taiwan and the Red Sea. This has spurred demand for real-time monitoring systems.

Firms like Teledyne Technologies, which develops underwater drones and sonar systems, could profit from enhanced surveillance of critical cable routes. Satellite imaging companies such as Maxar Technologies (MAXR) may also see contracts to map and monitor seabeds.

Risks to the Status Quo

While the decoupling creates opportunities, it also poses risks to companies dependent on Chinese infrastructure.

• Telecoms and Data Centers: Multinational firms using Chinese-controlled cables—such as those in the Asia-Pacific region—face higher costs to reroute traffic or upgrade to compliant systems. Companies like Alibaba Cloud or Singapore-based Singtel (SING.SI) could face short-term disruptions.
• Supply Chain Fragility: The abrupt shift away from Chinese suppliers risks bottlenecks in cable manufacturing. Investors should monitor Ciena's backlog and HPE's production timelines for signs of strain.
• Geopolitical Volatility: Beijing's potential retaliation—such as restricting access to its ports or imposing tariffs on Western tech—could destabilize the sector.

Investment Strategy: Balance Growth and Caution

The FCC's ban is a long-term structural shift, not a fleeting trend. Investors should focus on companies with:
1. Proven undersea expertise: Ciena, HPE.
2. Cybersecurity integration: PANW, CRWD.
3. Maritime surveillance capabilities: TDY, MAXR.

Avoid overexposure to firms with entrenched Chinese partnerships, especially those lacking alternatives to Huawei's infrastructure.

Conclusion

The undersea cable decoupling represents a rare confluence of geopolitical urgency and technological innovation. For investors, it is a call to bet on resilience—both in infrastructure and in portfolios. While the path ahead is fraught with risks, the firms that dominate secure, Western-built networks will be the winners in this new digital Cold War.

The widening gap between these two stocks underscores the trend. Stay anchored in the winners.