AI Optics Just Got Crushed: COHR Fell 14%. Is the “Picks-and-Shovels” Trade Peaking?

AI optical-networking stocks suffered a broad valuation reset. COHR dropped 14.2%, LITE lost 8.6%, and AXTI plunged 16.7%. So far, there is little evidence that AI-driven optical demand has suddenly weakened. The selloff looks more like aggressive de-risking ahead of Coherent’s earnings—but expectations are now so high that strong growth alone may no longer be enough.

AI Optics Became the Market’s Biggest Pain Point

The latest session was brutal for optical-networking stocks:

• $Coherent(COHR)$: −14.2%

• $Lumentum(LITE)$: −8.6%

• $AXT Inc.(AXTI)$: −16.7%

• $Fabrinet(FN)$: −6.3%

• $Applied Optoelectronics(AAOI)$: −2.1%

COHR fell toward the $325 area on sharply higher volume, while AXTI and LITE also suffered heavy selling.

This was not an isolated company-specific event. Investors reduced exposure across the entire AI optics trade, especially in names that had rallied aggressively on 800G, 1.6T and data-center demand.

Why Did the Selloff Happen Now?

1. Policy expectations moved faster than reality

Last week, reports suggested that the U.S. government was considering restrictions on new Chinese optical-transceiver products entering American data centers.

The market quickly priced in a potential share shift toward U.S.-linked suppliers such as COHR, LITE and AAOI.

However, the proposal has not been finalized. Its scope, timing and product definitions remain unclear. Jefferies has also argued that the restrictions may be more useful as a negotiating tool than as a policy that is ultimately implemented. Reuters

When an uncertain policy catalyst produces a rapid rally, the absence of further confirmation can be enough to trigger profit-taking.

2. Investors are cutting risk before COHR earnings

Coherent will report after the U.S. market closes on August 12.

COHR has become one of the main valuation anchors for the AI optical-networking sector. The larger its previous rally, the more investors expect from data-center revenue, 800G and 1.6T shipments, margins and forward guidance.

The risk is not necessarily that earnings will be weak.

The real risk is that results may be good—but not good enough to beat the expectations already embedded in the share price. Coherent earnings schedule

Is Optical Demand Actually Slowing?

The latest company data does not yet support that conclusion.

AAOI reported second-quarter revenue of $191.9 million, up approximately 86% from $103.0 million a year earlier. Its 800G shipments more than doubled quarter over quarter.

The company guided for third-quarter revenue of $255 million to $290 million and said demand for advanced optical products could continue exceeding its capacity through at least mid-2027. AAOI results

The upstream supply chain also remains tight.

Lumentum signed a long-term supply agreement with AXT involving $87 million of deposits to secure indium-phosphide wafer supply through 2031. AXT announcement

Companies generally do not make large, multi-year prepayments for critical materials when they expect end demand to collapse.

That makes the latest selloff look more like a reset in valuation and positioning than confirmation that the AI optics cycle has ended.

The Supply-Chain Contradiction Investors Cannot Ignore

Potential U.S. restrictions on Chinese-made optical transceivers could benefit American suppliers—but those suppliers may still depend on upstream materials connected to China.

High-speed optical transceivers rely on indium phosphide, or InP, for lasers and other components. Much of AXT’s InP substrate production is located in China, while China has tightened export controls on related materials.

According to Reuters, average prices for six-inch InP wafers rose by roughly 250% to around $5,000 following the restrictions. Lumentum’s relevant capacity has reportedly increased fourfold, yet orders are already booked into 2028. Reuters

This creates two competing policy effects:

• Restrictions on Chinese finished transceivers could support market share for COHR, LITE and AAOI.

• Restrictions on upstream materials could raise costs and slow production for those same companies.

Trade restrictions are therefore not a simple one-way positive for U.S. optical stocks.

The real winners will be the companies that can secure wafers, lasers, packaging capacity and customers—and convert strong demand into profitable shipments.

Four Things to Watch in COHR’s Earnings

Coherent’s report could determine whether the sector stabilizes or faces another round of valuation compression.

I will be watching:

1. Growth in data-center and communications revenue

2. Demand and shipment commentary for 800G and 1.6T products

3. The impact of InP supply constraints on deliveries, costs and margins

4. Whether the new fiscal-year outlook can support the current valuation

If orders, margins and guidance continue moving higher, the selloff may prove to be a painful pre-earnings positioning reset.

If revenue remains strong but margins or guidance disappoint, investors may continue cutting valuations across the optical-networking sector.

Tiger Radar’s View

I am not ready to call the end of the AI optics cycle based on one session.

AAOI’s accelerating 800G shipments and Lumentum’s decision to secure years of InP supply both suggest that underlying data-center demand remains real.

But a 14% decline does not automatically make COHR cheap—especially before earnings.

My current approach:

• Strong results and higher guidance: Watch whether COHR and LITE can quickly reclaim the breakdown.

• Solid results but another selloff: The valuation reset is probably not finished.

• Weak guidance or margin pressure: Treat the decline as a possible fundamental repricing, not simply a dip-buying opportunity.

For now, the most important question is not whether COHR has fallen enough.

It is whether the company can deliver enough growth, margin expansion and forward visibility to justify what investors were already expecting.

Today’s Poll

How are you approaching the AI optics selloff?

A. Buy COHR before earnings—the decline is overdone
B. Prefer LITE for stronger supply and order visibility
C. Watch AAOI for greater upside from 800G growth
D. Wait for COHR’s earnings before making a decision

Is COHR’s 14% drop a buying opportunity—or the first warning that the AI “picks-and-shovels” trade has become too crowded?

Disclaimer: This post is for market discussion only and does not constitute investment advice. Optical-networking stocks can be highly volatile and remain exposed to valuation, customer concentration, capacity expansion, trade-policy and raw-material supply risks.