US stock optical communication sector surges, could Taiwan stocks continue the rally? AAOI spikes more than 24%, LITE is added to the Nasdaq-100

Yesterday, the US stock optical communications sector once again staged a “collective sell-off reversal” surge. Applied Optoelectronics (AAOI) rose 24.14%, closing at $184.9; Lumentum (LITE) gained 16.52%, closing at $1,053.09, with the note that it will be added to the Nasdaq-100 on 5/18; Coherent (COHR) rose 13.2%, closing at $379.69. The market is also looking for the Taiwan stock market’s opening to give the Taiwan optical communications sector a chance to carry on the rally.

Individual stocks Ticker Rise Closing price (USD) Note Applied Optoelectronics AAOI 24.14% 184.9 Lumentum LITE 16.52% 1,053.09 5/18 will be included in Nasdaq-100 Coherent COHR 13.2% 379.69

Of note, this push higher happened after the sector quickly flipped to a V rebound following a sharp selloff of the group on 5/7 after AAOI earnings, where AAOI fell 14%, COHR dropped 10%, and LITE slid 7%.

Optical communications big breakout catalysts: a plot twist after the market “misread the earnings report”

The surge in optical communications is, in essence, a “second repricing after the market overreacted.” AAOI released its Q1 earnings after the market close on 5/7. At the time, it was sold off because gross margin and revenue appeared to be “worse than expected.” Trader Serenity then broke down the earnings call, and the market realized that the key narrative had not changed. The issue was not demand weakness, but that capacity couldn’t keep up with demand, which then triggered the V-shaped rebound on 5/11.

The “true bullish signals” in the AAOI earnings were initially misjudged by the market

AAOI Q1 revenue was $151.1 million, and Non-GAAP gross margin was about 29.2%. The data looked weak on the surface, but management stated clearly that the reason was production cost increases due to capacity constraints and the early ramp-up stage of 800G products, not a decline in demand. Three key signals from the call:

800G monthly production capacity has reached 100k units

From Q3 onward, newly added capacity will come online, and revenue and gross margin will “jump significantly.”

Q2 revenue guidance of $180–198 million shows clearly accelerating sequential momentum, matching the timeline of “loosening the capacity bottleneck.”

Management explicitly said that 800G and 1.6T optical module demand “will continue to exceed capacity” until mid-2027. This means that for the next 18 months, there is basically no risk of “demand weakening” for the sector—what remains is simply who can expand capacity and who can deliver.

Lumentum has already validated the “capacity bottleneck” thesis

Lumentum reported earnings on 5/5: quarterly revenue of $808.4 million, up 90.1% year over year; Non-GAAP gross margin surged to 47.9%, operating margin to 32.2%; and Non-GAAP EPS of $2.37. For FY26Q4, revenue guidance was raised to $960–1,010 million and Non-GAAP EPS to $2.85–3.05. CEO Hurlston revealed that orders from the super-large cloud customer have “locked” capacity through 2028, with a 2028 EPS target of up to $30.

Lumentum’s conclusion is very direct: sell as much as you can. The same script was validated by AAOI’s earnings report afterward. This is not an individual company story, but a supply-demand mismatch shared across the entire optical communications industry.

The essence of the optical communications sector—and the same as the names that will see exponential growth through 2027—is exactly like Serenity said: the current financial figures shouldn’t be the focus; the real valuation variables are the outlook for super-large cloud customer demand and the capacity ramp timeline. The spike on US stocks on 5/11 is the market finally sending a signal that the valuation anchor has switched from “Q1 gross margin” back to the “2027 capacity curve.”

This article US optical communications sector surges higher, with Taiwan stocks expected to continue the rally? AAOI jumps more than 24%, LITE included in Nasdaq-100 first appeared on Chain News ABMedia.