Optical stocks surge 14% as US weighs China transceiver ban

US optical communication stocks climbed at the open, with Coherent up more than 14 percent, after the Trump administration moved to ban Chinese transceiver imports.

The Federal Communications Commission is drafting rules to prohibit new Chinese data center components from entering the US market, Reuters reported, with the plan expected to be announced this year.

Lumentum gained more than 10 percent, Corning rose more than 8 percent, and Marvell Technology climbed more than 5 percent. The rally extended a four-day advance that lifted Applied Optoelectronics 72 percent and Coherent 46 percent after the FCC moved toward the ban. Shares of Ciena and Cisco Systems, which also operate optical transceiver businesses, rose 5.21 percent and 5.08 percent, respectively.

The move hands US suppliers a larger share of a transceiver market where China's Zhongji Innolight holds 27 percent, according to Counterpoint Research. A short-term transition could raise construction costs for North American data centers, pressuring hyperscaler capital expenditure.

The proposed restrictions target next-generation optical transceiver modules, the components that convert electrical signals to light in fiber-optic networks linking data center servers. The FCC placed China's Huawei and ZTE on a national security threat list in 2021, and last year added drone and router makers including DJI to import bans.

Investors expect Amazon, Microsoft, Google, and Meta to shift procurement to non-Chinese suppliers, driving the sector-wide rally. Coherent, which counts Nvidia as a strategic investor after the chipmaker's $2 billion stake, has emerged as a primary beneficiary. The company's data center and communications business contributed 75.4 percent of revenue in its fiscal third quarter, which rose 21 percent year over year to $1.81 billion, with non-GAAP earnings per share up 55 percent to $1.41.

The rally comes as hyperscalers reaffirm plans to keep spending on AI infrastructure. Google, Amazon, Microsoft, and Meta all posted strong quarterly results and confirmed continued investment in data centers, easing concerns that the AI buildout was slowing. Optical components have become a critical bottleneck as data centers replace copper wiring with fiber-optic connections to handle the data flows generated by AI workloads.

Coherent reports fiscal fourth-quarter results on Aug. 12, with analysts projecting revenue near $1.98 billion and non-GAAP earnings per share of $1.43, up 93.2 percent year over year. Management guided for revenue of $1.91 billion to $2.05 billion and earnings per share of $1.52 to $1.72. The stock trades at 59.4 times forward adjusted earnings, a premium that reflects expectations for continued AI-driven demand.

The rally marks a sharp reversal for a sector that sold off through July. Coherent touched a record high of $440 in June before falling 49.8 percent to a July low of $220.68; it has since recovered 49 percent. Analysts covering the company lean bullish, with 16 of 23 rating it a strong buy and an average price target of $388.25 implying 17.1 percent upside.

Analysts warn that a complete cutoff in the short term could raise construction costs for North American AI data centers, escalating capital expenditure for the four major cloud providers. Zhongji Innolight, which generates 90 percent of sales outside China, was added to the US Defense Department's list of Chinese military-backed companies in June.

This article is for informational purposes only and does not constitute investment advice.