Optics stocks plunge up to 13% as Korean tech rout hits AI trade

Shares of Applied Optoelectronics tumbled 13% to $149, Coherent fell 9% to $387 and Lumentum slid 8% to $825 at midday Tuesday, as a South Korean tech rout rippled through AI-linked optics suppliers already trading at extreme valuations.

"The optics complex has been pricing in perfect execution on hyperscaler AI spending, and any wobble in the macro tape hits these names hardest because there is almost no valuation cushion," said Rachel Kim, semiconductor supply chain analyst at Edgen.

The selloff tracked a 6% decline in the VanEck Semiconductor ETF and a 3% drop in Nvidia, after South Korea's KOSPI fell 10% and SK Hynix overtook Samsung as the country's most valuable company. The CBOE Volatility Index sat at 17.28, suggesting the move was sector-specific rather than broad market panic. Coherent trades at 189 times trailing earnings and Lumentum at 146 times, while Applied Optoelectronics remains unprofitable — leaving almost no margin for error if AI capex sentiment shifts.

The three stocks have posted extraordinary year-to-date gains — Applied Optoelectronics up 336%, Lumentum up 126% and Coherent up 113% — fueled by 800-gigabit transceiver demand and hyperscaler buildout commitments. Tuesday's drawdown does not confirm a valuation top, but it tests whether the group can hold near prior breakout levels. A weak close would extend the debate over whether the optics trade has grown too crowded.

The Korean Trigger and the Valuation Gap

The immediate trigger was not company-specific. South Korea's semiconductor-heavy KOSPI dropped 10% as export controls on indium — a critical input for optical chips — tightened. China accounts for close to 70% of global indium output and added indium phosphide to its export control list in February 2025, according to Reuters. That supply-chain risk compounds the valuation pressure on optics makers that depend on indium phosphide wafers for high-speed lasers and transceivers.

Coherent's recent fundamentals have been strong. The company reported fiscal third-quarter revenue of $1.81 billion, up 21% year over year, with its datacenter and communications segment growing more than 40%. Lumentum's most recent quarter showed revenue up 90% year over year. Applied Optoelectronics posted $151 million in revenue, up 51%, though that figure missed consensus estimates.

Yet the multiples tell a different story. Coherent's NTM enterprise value-to-EBITDA of 38 times runs well above peers such as Corning at 34 times and Fabrinet at 32 times, and well past the peer median of 21 times, per TIKR data. Lumentum's consensus analyst target sits near $1,111, while Coherent's average target of about $385 sits below its current trading price — a rare signal that the market is pricing in a future Wall Street models have not caught up to.

What Investors Can Watch Next

The key test comes in the next few sessions. If Applied Optoelectronics, Coherent and Lumentum stabilize near prior breakout levels, Tuesday's selling may prove exhausted. A continued slide would suggest the group's triple-digit year-to-date gains have made it vulnerable to any shift in AI infrastructure sentiment.

Coherent's fiscal fourth-quarter results, due in August, will be the next major event. Management guided revenue of $1.91 billion to $2.05 billion and earnings per share of $1.52 to $1.72, both implying acceleration from the third quarter. A print at the high end with gross margin pushing toward 41% would signal that the company's 6-inch indium phosphide wafer ramp is converting to profit. A guide-down or margin stall would hit a stock trading at more than 57 times forward earnings with little cushion.

For investors, the optics trade remains one of the highest-conviction corners of the AI infrastructure theme, but Tuesday's selloff is a reminder that conviction has a price. At these multiples, the group can no longer absorb bad news — it can only absorb perfect execution.

This article is for informational purposes only and does not constitute investment advice.