Optical and photonics stocks are rebounding, with Lumentum (LITE) adding 5 percent as buyers return to the sector after profit-taking pulled the group back from early-June highs.

These companies produce the lasers, transceivers and switches that data centers depend on for AI compute. Their performance has become a direct derivative of AI infrastructure spending.

Lumentum gained roughly 700 percent over the past 12 months. Corning climbed more than 200 percent during the same period. Both are established, profitable companies repriced by AI buildout demand.

July brought a sharp correction, with the optical complex falling approximately 15 percent to 20 percent from its highs. Lumentum shares dropped 7 percent to $757, while Coherent (COHR) fell 5 percent to $296.

The selloff reflected profit-taking after a historic run, Lumentum's removal from the Russell index—which triggered forced selling—and concern over the timing of co-packaged optics adoption. The pullback had little to do with deteriorating fundamentals.

The snapback is underwritten by constructive analyst commentary. Barclays upgraded Lumentum to Overweight. JPMorgan reiterated its Overweight rating, framing the dip as a buying opportunity. JPMorgan's channel checks confirmed co-packaged optics adoption remains on track. Citi placed Lumentum on an upside catalyst watch ahead of its upcoming earnings report.

Lumentum reported record fiscal third-quarter revenue of $808.4 million in May, up 90 percent year over year. The company holds a Zacks Rank No. 2 (Buy) on rising earnings estimates.

Valuations remain elevated. Both Coherent and Lumentum trade above 127 times trailing 12-month earnings. Applied Optoelectronics (AAOI) remains unprofitable despite a 176 percent gain year-to-date, leaving little margin for execution misses.

Applied Optoelectronics gained 7 percent recently, with Coherent adding 7 percent—moves that reflect broader risk-on sentiment across the AI optics sector.

Lumentum is set to report earnings Tuesday. Investors will watch for details on AI demand and the company's forward outlook.