Applied Optoelectronics Dives 9% as AI Funding Fears Hit Optical Stocks; Coherent Slides 7%, Lumentum Drops 7%

Optical networking suppliers are sliding again, and Applied Optoelectronics (NASDAQ:AAOI) stock is falling the most as doubts about how artificial intelligence (AI) infrastructure gets funded spread through the group. Applied Optoelectronics stock is at $88.99, down 9% in afternoon trading, though it remains up 155% year to date.

Meanwhile, Coherent Corp. (NYSE:COHR | COHR Price Prediction) stock is at $269.33, down 7% as it follows its smaller peer lower. Likewise, Lumentum Holdings (NASDAQ:LITE) stock is at $920.42, down 7% in step with Coherent. Such a tight range of losses points to a sector-wide revaluation of AI connectivity suppliers.

Thematic funds are feeling the pressure as well, and the Roundhill Photonics & Optics ETF (CBOE:LYTE) is down 8%. Lumentum and Coherent were the fund’s two largest holdings as of August 6, while Applied Optoelectronics carried a far smaller weight in the basket. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is down 1%, a softer decline that shows how tightly the selling is concentrated in optical names.

Broadcom and Intel Funding Warnings Rattle Optical Names

Optical networking shares began selling off on October 12. The slide came after Broadcom (NASDAQ:AVGO) chief executive Hock Tan stated access to capital could become a bigger constraint on AI expansion than chip shortages. Intel (NASDAQ:INTC) chief executive Lip-Bu Tan also pointed to rising borrowing costs and uncertainty over returns on AI investments. Along with other optical names, Lumentum stock finished among the market’s biggest losers that day.

The selling has continued since, and no company-specific development explains this session’s move in Applied Optoelectronics stock. Applied Optoelectronics completed an at-the-market equity program, raising capital to fund the capacity expansion its optical component business needs. Its completion announcement came on October 5, days before the funding warnings from Broadcom and Intel.

Smallest Supplier Faces the Biggest Capacity Test

Lasers, transceivers and optical components from Applied Optoelectronics, Coherent and Lumentum move data between servers inside AI data centers. Their revenue tracks hyperscale spending. So the group is sensitive to any sign that budgets could tighten (we covered seven non-chipmaker suppliers riding the same AI expansion in a free report here). By far the smallest of the group, Applied Optoelectronics also sells into cable broadband networks, which gives it a revenue base Coherent and Lumentum don’t share.

Record results support the bull case. In Q2 2026, Applied Optoelectronics posted revenue of $191.92 million, up 86.4% year over year, as its datacenter segment more than doubled. The company also returned to adjusted profitability, earning $0.06 per share against a $0.015 estimate.

On the company’s August 6 call, chief executive Thompson Lin stated, “Demand to support next-generation AI infrastructure remains so robust that our near-term revenue is bounded almost entirely by production capacity and key component availability.” Management then guided Q3 2026 revenue to $255 million to $290 million. Lin also forecast that demand would outpace production capacity through mid-2027.

Hyperscale Orders Decide the Expansion Payoff

The open question for Applied Optoelectronics is whether hyperscale customers keep placing orders at the pace its expanded capacity assumes. Its top 10 customers accounted for 99% of Q2 2026 revenue, which leaves little buffer if one large buyer slows down its spending or delays deliveries. Applied Optoelectronics still posted a net loss under generally accepted accounting principles in that quarter, a reminder that its rapid expansion is costly.

Coherent and Lumentum struck a confident tone in August. On an August 12 call, Coherent chief executive Jim Anderson stated, “We continue to see no signs of attenuation in customer demand.” Lumentum chief executive Michael Hurlston added that “data center architects are turning to optical links as a primary means of connectivity,” and the company guided Q1 FY2027 revenue to $1.225 billion to $1.275 billion.

Those remarks came weeks before the funding warnings from Broadcom and Intel, so fresh order commentary from these suppliers could show whether this pullback reflects a real shift in demand. For now, investors may want to keep their exposure to optical names appropriately sized for further volatility.

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