Quick Read
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Nvidia invested $2 billion in Lumentum (LITE), which is sold out through 2029, while Coherent (COHR) expands capacity that could end the shortage.
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Pending U.S. rules could shut Chinese suppliers, who make two-thirds of optical transceivers, out of the next-gen market, lifting Corning (GLW) 3%.
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Optics/photonics stocks are extending their rebound as more analysts argue that optics are a choke point in the AI expansion, yet Coherent( NYSE:COHR ) is sitting out the move. Lumentum Holdings( NASDAQ:LITE ) stock is at $897 in afternoon trading, up 4%.
Applied Optoelectronics( NASDAQ:AAOI ) stock is at $80, up 3%. Coherent stock is at $237, up by only 0.4%, which leaves one of the group's biggest names behind its peers.
Why Optical Stocks Keep Rebounding
The gains for Lumentum and its peers extend a recovery that's been building as the AI-bottleneck argument gains support. Evercore ISI analyst Amit Daryanani pointed to three drivers in an October 27 note. The first is that U.S. regulators are expected to limit imports of foreign-produced optical transceivers by the end of the first quarter of 2027, which Daryanani said would effectively shut Chinese suppliers, which make about two-thirds of all optical transceivers today, out of the U.S. market for next-generation 3.2-terabit (3.2T) transceivers. Such a move would slow AI deployment but help U.S. and allied makers, in his view.
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His other two drivers were signs that expansion plans at indium phosphide manufacturers are wavering and renewed confidence that AI spending will last. He called optics "a critical bottleneck to the AI buildout." That background has Lumentum and Applied Optoelectronics running well ahead of the SPDR S&P 500 ETF Trust( NYSEARCA:SPY ), which is at $771, up 0.2%. (The optics names are one slice of the AI buildout; we rounded up seven more suppliers behind the data centers, from power to cooling, in a free report you can grab here.)
Lumentum has also picked up new analyst support. StoneX started coverage of Lumentum with a Buy rating and a $1,200 price target on October 26, and Jefferies analyst Blayne Curtis raised his price target on the stock to $1,250 from $1,200 on October 20.
October was rough for the group before the recovery took hold. Glass and fiber maker Corning( NYSE:GLW ) is down 17% over the past month. Applied Optoelectronics has lost 22% over that span, and Coherent has given up 20%.
Lumentum Sells Scarcity While Coherent Builds Capacity
Scarcity grounds the Lumentum story. CEO Michael Hurlston stated on October 8 that Lumentum can't meet an estimated 70% of demand for some products through 2027, and he has described the company's optical parts as "completely sold out" through early 2029.
Lumentum's fiscal 2026 revenue rose 83% to $3.01 billion, and the company guided its fiscal Q1 2027 revenue to $1.225 billion to $1.275 billion with adjusted earnings per share of $4.05 to $4.35. Those numbers show why investors betting on Lumentum need tight supply to last.
Coherent is the balance. NVIDIA( NASDAQ:NVDA ) and Coherent stated that NVIDIA invested $2 billion in Coherent, as it did in Lumentum, and Coherent set out to double its indium phosphide laser output by the end of September and more than double it again before 2028.
One way to read the split is that Lumentum profits as long as shortages persist, and Coherent is adding the capacity that could narrow them. Year to date (YTD), Coherent stock is up 28%, by far the smallest gain of the four, while Lumentum stock is up 143%.
Applied Optoelectronics and Corning are rising with the rest of the group. Shares of Applied Optoelectronics are up 128% YTD. Corning stock is at $131, up 3%. So far this year, the glass and fiber maker has gained 50%, and it fills a different link in the optical chain than the laser and transceiver makers.
Lumentum's Next Report Tests the Optical Shortage Trade
Lumentum's upcoming fiscal first-quarter report will show whether its laser-chip shortfall is narrowing. Any regulatory action on transceiver imports could change competition for U.S. makers such as Applied Optoelectronics, while progress on Coherent's capacity expansion bears on how long the shortage lasts.
Microsoft( NASDAQ:MSFT ) reports results after the close on October 28. Alphabet( NASDAQ:GOOGL ) is scheduled the same evening, and both reports offer a read on the AI spending that drives demand for Lumentum and its peers.
The bulls could argue that import limits and wavering indium phosphide expansion could keep optical parts scarce, supporting pricing for Lumentum. The bears can point to Coherent's added laser output and October's steep decline as signs that the shortage trade can reverse quickly. Investors may want to follow optical supply trends closely until the debate over optical supply resolves.
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