Investors heavily exposed to the AI suppliers will watch the optical networking stocks closely. Since June, shares of Ciena (CIEN) have traded in a downtrend. It peaked at $637.51 and closed at $405.01.
On Monday, CIEN stock fell by 9.95%. Profit-taking pressure weighed on the stock price. The sellers also sold down Lumentum Holdings (LITE), which also fell by nearly 10%. Markets are dismissing Lumentum’s announcement that the company sold out of its components through 2029.
AI suppliers like Micron Technology (MU) have similar long-term orders from customers. However, such contracts do not guarantee full order payment. If the AI were in a bubble, AI server demand would plunge. Micron and Lumentum would have trouble forcing their long-time customers to fulfill their bookings. Firms like AXT (AXTI) and GlobalFoundries (GFS) would experience a sharp drop in silicon photonics.
Coherent (COHR) fell in sympathy to its peers on Monday. The stock dropped by 7.87%. Momentum investors are likely taking advantage of Lumentum’s sold-out announcement that it made on Oct. 9.
Your Takeaway
Markets do not know what the terms are that customers set on the AI parts orders. It takes only one customer reneging on its order for other customers to follow. Suddenly, “sold out” conditions would change to ample supply meeting demand.
