**AI optics stocks tumbled Friday in a coordinated selloff that erased billions in market value, with Applied Optoelectronics leading the decline despite no change in the underlying demand thesis.
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AI optics stocks slide 9% as profit-taking hits year's biggest winners
AI optics stocks tumbled Friday in a coordinated selloff that erased billions in market value, with Applied Optoelectronics leading the decline despite no change in the underlying demand thesis.
AI optics stocks tumbled Friday as profit-taking swept through the year's hottest semiconductor trade, with Applied Optoelectronics falling 9% to about $154 despite intact demand from hyperscaler data center buildouts.
"Today's move looks like portfolio rebalancing, not a fundamental shift in AI networking demand," Rosenblatt Securities analyst Mike Genovese said in a note. "The optics supply chain remains constrained through 2027."
Coherent sank 8% to roughly $346, while Lumentum slid 4% to about $829. The declines barely dented year-to-date gains: AAOI remains up 341%, COHR has climbed 87%, and LITE has gained 125%. No company-specific negative news surfaced for any of the three names.
The selloff comes as Nvidia pushes suppliers for a 20-fold increase in indium phosphide laser capacity through 2030 to prevent networking bottlenecks in AI clusters, according to Rosenblatt. Suppliers have countered with a 12-fold increase, signaling demand expectations remain enormous even as management teams fear repeating the telecom boom-and-bust cycle that crushed optical margins in the last decade.
The rotation story played out in real time Friday. ServiceNow surged 14% as capital moved from hardware into beaten-down enterprise software, with NOW shares down 29% year-to-date before today's rally. The optics complex had ripped higher Thursday after Dell Technologies posted blowout AI server earnings, setting up a buy-the-rumor, sell-the-news dynamic into the weekend.
Fundamentals Remain Intact
Applied Optoelectronics guided second-quarter 2026 revenue to a range of $180 million to $198 million, with management flagging an even larger sequential ramp in the third quarter as its Houston production facility comes online. The company's data center segment more than doubled to $81.4 million year-over-year in the first quarter on demand for 800G transceivers tied to AI buildouts.
Coherent's fiscal third-quarter data center and communications segment grew 41% year-over-year and now represents 75% of total revenue. The company joined the S&P 500 earlier this year as institutional investors added AI infrastructure exposure.
Lumentum's optical circuit switching backlog exceeded $400 million, and management cited an incremental multi-hundred-million-dollar co-packaged optics order deliverable in the first half of 2027. Lumentum shares have surged more than 1,000% over the past 12 months, making it the runaway leader of the optics cohort.
The InP Market Opportunity
Rosenblatt estimates the indium phosphide optics market could grow from roughly $1.9 billion in 2025 to $22.75 billion by 2030 — a nearly 12-fold increase in annual laser revenue capacity. Lumentum's capacity could reach $9 billion by 2030, up from $600 million today, while Coherent could expand from $125 million to $4.3 billion and Applied Optoelectronics from $60 million to $2.1 billion. Broadcom, Mitsubishi, and Sumitomo round out the supplier base, with Broadcom projected at $4.5 billion in capacity by 2030.
The shift toward co-packaged optics, which moves optical connections closer to AI chips to improve speed and reduce power consumption, is driving the urgency. Nvidia's math is straightforward: a single AI cluster with 100,000 accelerators can create networking bottlenecks that erase the benefit of adding more compute.
For investors, the question is whether Friday's pullback represents a buying opportunity or the start of a deeper correction. The optics demand thesis backed by hyperscaler capital expenditure remains intact, but after gains of this magnitude, sharp single-day drawdowns are part of the pattern. The next round of hyperscaler capex commentary will likely determine whether these names hold current levels or reset further. Coherent and Lumentum trade at elevated multiples reflecting the growth trajectory, while Applied Optoelectronics' 341% year-to-date gain already prices in much of the expected AI demand increase, according to Rosenblatt.
This article is for informational purposes only and does not constitute investment advice.
