Shares of Credo Technology (Nasdaq: CRDO), Lumentum (Nasdaq: LITE), and Applied Optoelectronics (Nasdaq: AAOI) were hammered Tuesday, with CRDO down 15%, LITE off 11%, and AAOI sliding 7% as investors rushed for the exits after a massive sector-wide surge yesterday.
Yesterday’s Win Becomes Today’s Exit
The optics sector exploded higher on March 2nd after NVIDIA announced a $4 billion investment in Coherent (NYSE: COHR) and Lumentum, lifting the entire photonics space. Today, that euphoria has flipped into aggressive profit-taking. None of the three companies have released negative news today. This is the market doing what it does: run it up, then ring the register.
CRDO’s earnings report, released after the close yesterday, showed how much narratives are driving price action right now. The numbers were genuinely exceptional. Revenue came in at $407.01 million, up 201.5% year over year, beating the consensus estimate of $387.62 million by 5%.
Non-GAAP EPS hit $1.07 versus the $0.94 estimate. CEO Bill Brennan put it plainly:
“In the third quarter Credo once again delivered record results with revenue of $407.0 million, an increase of more than 50% sequentially and 200% year over year.”
But buried in the guidance was a detail that gave investors pause. Q4 gross margin guidance came in at 64% to 66%, down from 68.6% in Q3, as newer product lines like ZeroFlap optics and Active Line Cards ramp with lower initial margins.
Investors are rotating into stocks in the optics space because of trends like co-packaged optics (CPO). Credo may be guiding to 50%+ revenue growth in 2027, but investors fear the company’s AEC stronghold (build on copper cables) may have a tenuous future.
The Run That Made This Selloff Inevitable
Context matters here. CRDO is still up 93% over the past 12 months, even after today’s beating. LITE has surged 957% over the past year and is up 88% year to date. AAOI has been the most explosive, up 438% over the past year and 173% year to date. When names move like that, profit-taking is not a surprise. It is a mathematical certainty at some point.
For LITE and AAOI specifically, there is no company-specific bad news driving today’s declines. Lumentum’s most recent quarter showed 65.5% year-over-year revenue growth with Q3 guidance pointing to over 85% YoY growth. AAOI guided for $150 million to $165 million in Q1 2026 revenue and projected full-year 2026 revenue could exceed $1 billion. I detailed why Applied Optoelectronics kept soaring yesterday in a post detailing all of the catalysts behind the company.
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