Applied Optoelectronics shares fell 14% in midday trading on Tuesday, leading a broad selloff across the optics group as investors rotated out of a cluster of stocks tied to AI datacenter demand. Coherent fell 10%, Lumentum lost 7%, Ciena dropped 10% and Fabrinet slid 8%.
The move came a day after Coherent reported fiscal third-quarter 2026 non-GAAP earnings of $1.41 a share, just ahead of the $1.3943 consensus, on revenue of $1.81 billion. Coherent also said Datacenter and Communications revenue rose 41% from a year earlier to $1.36 billion and made up 75% of total revenue, underscoring how heavily the group’s results now depend on the same datacenter buildout story that has driven the stocks higher this year.
That rally had been steep before the pullback. Applied Optoelectronics had been up 412% year to date, Lumentum 156% and Coherent 87% before Tuesday’s decline. The stocks have been trading together as a correlated AI datacenter basket because they share hyperscaler customer exposure and sell into the same upgrade cycle, including 400G, 800G and 1.6T transceivers and co-packaged optics.
Applied Optoelectronics now has a near-term test of its own. The company is scheduled to report after the market close on May 7, and management has guided first-quarter 2026 revenue to $150 million to $165 million. Trading in the name was already active early, with volume reaching 756,465 shares in the opening 15 minutes.
The selloff also followed a fresh industry signal that the demand story is still drawing big capital. NVIDIA and Corning announced a $500 million optical connectivity deal that would expand Corning’s optical capacity tenfold and add three new U.S. factories. That kind of spending does not erase the sudden weakness in the shares today, but it does show why investors have been willing to keep paying up for the sector.
For Lumentum, the pressure has been building in the market’s own sentiment gauges as well. Its composite sentiment score fell 30.55 points over the past seven days, while Reddit chatter shifted from r/stocks to WallStreetBets and the WallStreetBets sentiment score dropped to 18. The message from traders is less about whether AI infrastructure demand exists than how much of that growth is already in the price.