Optical component makers are rallying sharply, with several stocks climbing more than 25 percent since late July. Applied Optoelectronics Inc. has led the sector, rising 76 percent in nine trading sessions. Coherent Corp. advanced 48 percent over the same period.

The driver: renewed investor conviction that large technology companies—Microsoft Corp. Alphabet Inc. Amazon.com Inc. and Meta Platforms Inc.—will sustain their artificial intelligence capital expenditure plans.

Optical components enable data transfer with greater speed and efficiency than copper wiring. Demand has surged as hyperscalers build out data centers dedicated to AI computing.

Michael Monaghan, portfolio manager at Founder ETFs, said optical stocks are performing strongly because they represent a bottleneck within AI infrastructure. "This position enhances their pricing power and order volumes, fueling their momentum," he said.

The sector saw explosive gains earlier in 2026. From the start of the year through mid-May, Corning Inc. Lumentum Holdings Inc. and Coherent each surged over 100 percent, ranking among the 15 best performers in the S&P 500. Applied Optoelectronics, which is not part of the S&P 500, jumped 446 percent during that period.

Investor sentiment shifted around mid-May, as skepticism about AI spending first hit semiconductor stocks and then contributed to a broader technology selloff that lasted until late July. Sentiment reversed as major tech companies reported robust cloud-computing sales and reaffirmed their commitment to substantial spending.

Currently, the outlook for capital expenditure from major hyperscalers holds far more weight for these stocks than individual companies' financial results. Monaghan said market participants are watching capital spending more closely than earnings or revenue. If capital spending slows, these stocks will decline, reflecting the sector's dependence on continued investment from large AI developers.

Recent catalysts include Lumentum's fourth-quarter earnings and first-quarter outlook, which both surpassed expectations. Applied Optoelectronics, Coherent, Fabrinet, and Corning all gained in premarket trading following Lumentum's report. Applied Optoelectronics rose 13 percent, Coherent advanced 13 percent to $379.26, and Lumentum gained 8 percent to $908.11.