AI Stocks: Lumentum, Coherent Lead Optical Rally

Lumentum rose about 10%, Applied Optoelectronics 9% and Coherent 7% as bullish coverage and AI demand revived optical stocks ahead of November earnings.

Lead

Optical and data-center suppliers rebounded sharply on Monday, Oct. 26, as Lumentum (LITE) rose about 10%, Applied Optoelectronics (AAOI) about 9% and Coherent (COHR) about 7%. Bullish analyst coverage and renewed enthusiasm for AI infrastructure spending lifted the group. It was one of the strongest sessions in the sector since a mid-October pullback. The Roundhill Photonics & Optics ETF (LYTE) gained about 4% midday, while the broader S&P 500 tracker SPY rose roughly 0.7%.

What Drove the Optical Rally on Monday?

The rally followed a new round of bullish research, led by StoneX initiating coverage of Lumentum, and a series of earlier target increases from Jefferies and Evercore ISI. The coverage landed on top of comments from Lumentum chief executive Michael Hurlston earlier this month that AI-related optoelectronic components are "completely sold out" through early 2029.

Lumentum traded in a range from the mid-$750s before the open to the high $830s at midday, and closed just under $830. Applied Optoelectronics traded near $72 and Coherent near $221 during the session.

The move also reversed part of a recent slide. Lumentum closed near $996 on Oct. 12 after a spike above $1,100, then fell as money rotated into defensive sectors. Optical names fell sharply on Oct. 15, with Coherent down about 7%, Applied Optoelectronics down about 6% and Lumentum down about 5%.

Why Are Optical Components Central to AI Stocks?

Optical components carry data between the thousands of processors inside AI data centers, so they are a direct beneficiary of capital spending by hyperscalers. As clusters grow, demand rises for faster links such as 1.6T transceivers and for optical circuit switches, which route traffic without converting light to electrical signals. Among ai stocks, optical suppliers have become a way for investors looking to invest in AI infrastructure to gain exposure beyond the chipmakers themselves.

Analyst commentary has focused on Lumentum's potential to take a larger share of optical circuit switching demand at Alphabet (GOOG), with the market for such switches estimated at about $11 billion. Lumentum has also introduced a platform based on 1060 nm VCSEL lasers that extends PCIe connections over optics for AI data centers.

How Strong Are the Underlying Fundamentals?

Reported results show demand running well ahead of year-earlier levels. Lumentum posted fiscal fourth-quarter revenue of $1.01 billion for the period ended June 27, up 109.3% from $480.7 million a year earlier. Adjusted earnings rose to $3.23 per share from $0.88.

Share prices reflect that growth. Lumentum is up about 122% in 2026 even after the October retreat, and Applied Optoelectronics had gained about 231% through early October before recent weakness. The group has also outperformed the broader market by a wide margin, which leaves shares sensitive to any change in the demand outlook.

What Comes Next for Optical Earnings?

The next test arrives within two weeks. Coherent is scheduled to report on Nov. 4, and Lumentum and Applied Optoelectronics on Nov. 5, with all three releases after the market close. Results will show whether hyperscaler expansion plans are turning into firm optical orders and whether suppliers can add capacity quickly enough to meet them.

The main risk is a repeat of mid-October, when profit-taking and a rotation toward defensive sectors erased several sessions of gains within days. Concerns over how AI buildouts will be funded remain unresolved, and sharp rebounds in crowded trades can reverse quickly if order data disappoints.

Outlook

Optical stocks regained ground on Monday as bullish coverage and the sold-out supply message outweighed the October pullback. The November earnings reports will set direction for the group, with guidance, order visibility and capacity additions the main measures.