Shares of Coherent (NYSE:COHR | COHR Price Prediction) are down 11% to $241.62 midday Tuesday, with Applied Optoelectronics (NASDAQ:AAOI) stock falling 10% to $87.89 and Lumentum (NASDAQ:LITE) stock off 9% to $644.56. There’s no fresh company-specific news behind these moves. This is a sentiment and rotation trade, not a fundamentals break.
All three optics/photonics component names have ranked among the most crowded AI-infrastructure trades of the year. Coherent stock is up 28% year to date (YTD) even after today’s drawdown, Lumentum shares have climbed 71% YTD, and Applied Optoelectronics stock is still up by an astounding 150% YTD. Today’s action reads like profit-taking within very large 2026 rallies.
These same optics names were being pitched as prime AI-spending winners just last week. They’re now being dumped on doubts about the same spending cycle.
AI Spending Doubts Trigger the Selloff
The catalyst is growing investor skepticism about whether hyperscaler AI capex is sustainable and whether richly valued optics suppliers can keep re-rating higher into the group’s next earnings wave. Alphabet (NASDAQ:GOOGL) put a spotlight on that question last week.
Alphabet reported Q2 2026 capital expenditures of $44.92 billion, double the year-ago figure, and swung to free cash flow of -$5.86 billion. Google also flagged a full-year 2026 capital budget of $195 billion to $205 billion and tapped debt and equity markets to fund the buildout. The negative cash flow has become the flashpoint for questions about return on AI investment.
Alphabet’s top line held up, with revenue of $119.80 billion grew 24.2% year over year (YoY). The valuation piece matters here. Lumentum stock trades on a trailing P/E ratio of 110x and Coherent stock on 113x, multiples that price in years of AI-driven growth. Applied Optoelectronics isn’t profitable on a trailing basis, so its shares are even more sensitive to any wobble in the AI capex narrative.
Peers and Sector Reaction
The selloff extends well beyond optics. The iShares Semiconductor ETF (NASDAQ:SOXX) is down 4% to $493.97, a meaningful move for a diversified semiconductor proxy. The SOXX ETF is a narrow, concentrated fund tracking a single sector, so its volatility runs higher than a broad-market fund, and today’s decline signals rotation out of AI-chip exposure across the group.
Marvell Technology (NASDAQ:MRVL) stock is trading lower alongside the optics names. That’s despite CEO Matt Murphy citing “exceptional AI-related bookings” when Marvell raised its fiscal 2027 and fiscal 2028 revenue outlook. Marvell shares remain up 109% YTD, so the same profit-taking dynamic is visible on the silicon side of the AI networking stack.
Celestica (NYSE:CLS) stock is bucking the trend outright after its Q2 2026 report on Monday afternoon. The AI-infrastructure electronics manufacturing services (EMS) provider posted adjusted EPS of $2.54 on revenue of $4.7 billion, up 62.4% YoY, and raised its full-year outlook to $20.5 billion in revenue and $11.30 in adjusted EPS.
CEO Rob Mionis stated that 2027 revenue growth should “accelerate beyond the 65% growth rate” Celestica anticipates this year. That’s the contradiction shaping today’s action. The AI infrastructure supply chain keeps posting blowout numbers, yet traders are de-rating the entire group on doubts about the spending fueling those numbers.
What to Watch Now
The bull case here is that Coherent, Lumentum, and the wider optical group are executing on a real, multi-year AI networking cycle, and today’s drawdown is a positioning reset ahead of the next hyperscaler earnings run. The bear case is that stretched multiples and Alphabet’s negative free cash flow signal the market is losing patience with capex-heavy AI stories, and the momentum trade needs to reset lower before it stabilizes.
Investors can watch for whether these losses hold into the close and whether analyst notes emerge to defend the AI capex thesis. NVIDIA‘s (NASDAQ:NVDA) next earnings report and any additional hyperscaler capex commentary could reset the tone quickly. Given the trailing multiples above 100x on the profitable names, investors managing their AI exposure should size their positions modestly and keep their risk aligned to the group’s newly higher volatility.
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