The hottest corner of the AI infrastructure trade is taking a breather. Shares of Applied Optoelectronics (NASDAQ:AAOI) are down 10% in Monday midday trading, while Lumentum Holdings (NASDAQ:LITE | LITE Price Prediction) is off 9% and Coherent (NYSE:COHR) has slipped 6%.
There’s no fresh negative catalyst tied to any single name. Instead, momentum traders appear to be cashing out across the AI optical components complex after a powerful, multi-month run.
The selling is concentrated in the most extended names, which is exactly where profit-taking tends to bite first.
Profit-Taking Hits the Most Extended Names
The setup heading into Monday was extreme. Lumentum stock entered the session up 163% year to date (YTD) and 1,148% over one year, with a 18% one-month gain already in the books.
Coherent stock came in up 107.2% YTD and 385.2% over the past year, with a 24.1% one-month run. Applied Optoelectronics stock had the sharpest ascent of the group, sitting up 377% YTD through Friday’s close.
The technicals were flashing exhaustion. Coherent’s 14-day RSI hit 71.4 on May 14 before retreating, while Applied Optoelectronics’ RSI peaked at 69.05 on May 13. Both readings signaled overbought conditions just as the rally ran out of fuel.
Why Optics Has Been the Trade
Optical components have become the picks-and-shovels play of the AI data center buildout. Hyperscalers training large models need enormous quantities of high-speed interconnects to shuttle data between GPU clusters, and the migration from 400G to 800G transceivers, with 1.6T on deck, has been the focal point.
Lumentum’s most recent quarter showed it. Fiscal Q2 2026 revenue jumped 66% year over year (YoY) to $665.5 million, and management guided fiscal Q3 2026 revenue to $780 million to $830 million. CEO Michael Hurlston described Lumentum as “mission-critical to the world’s AI leaders.”
Coherent’s fiscal Q3 2026 datacenter and communications revenue rose 41% YoY to $1.36 billion, now 75% of total sales. NVIDIA (NASDAQ:NVDA)’s $2 billion investment in Coherent further cemented the AI narrative.
The Two-Sided Setup From Here
The bull case is straightforward. AI optical demand looks structural, the 800G to 1.6T transition is still in early innings, and hyperscaler capex commentary has remained robust through the most recent earnings cycle. Coherent’s analyst consensus target sits at $380.31, with 4 Strong Buy and 12 Buy ratings against just five Holds.
The bear case centers on price. Coherent’s trailing P/E ratio sits at 182x, and Applied Optoelectronics’ forward P/E ratio is 84x on a still-unprofitable trailing base (EPS of -$0.65). At these multiples, even a modest pace change in hyperscaler ordering can compress the stocks quickly.
Applied Optoelectronics also flashed a soft Q1 2026 print on May 7, with revenue of $151.14 million missing the $154.81 million consensus, even as datacenter sales more than doubled YoY.
What to Watch
Investors can watch for whether the pullback finds support into Monday’s close or accelerates if other AI-linked names follow. Any analyst notes recalibrating price targets after the recent run could shape the next move, as could fresh capex commentary from hyperscaler customers.
Coherent’s next earnings update and Lumentum’s fiscal Q3 2026 print are the obvious near-term catalysts. Until then, the optics complex looks like a tape driven more by positioning than by fundamentals, and momentum traders may keep these three active through the afternoon.
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