Credo Drops 15%, Lumentum 11%, and AAOI 7% In Optics Sell Off

Core Viewpoint - The optics sector experienced a significant sell-off following a previous surge, with shares of Credo Technology, Lumentum, and Applied Optoelectronics declining sharply despite strong earnings reports from Credo Technology [2][3][4]. Company Performance - Credo Technology reported exceptional earnings with revenue of $407.01 million, reflecting a 201.5% year-over-year increase, surpassing the consensus estimate of $387.62 million by 5% [4]. - Non-GAAP EPS for Credo was $1.07, exceeding the estimate of $0.94, indicating strong operational performance [4]. - Despite the strong earnings, Credo's Q4 gross margin guidance was lowered to 64%-66% from 68.6% in Q3, raising concerns among investors [4][7]. Market Dynamics - The optics sector saw a massive surge after NVIDIA's $4 billion investment in Coherent and Lumentum, which initially boosted investor sentiment [3]. - The recent sell-off is attributed to profit-taking after significant price increases, with Credo Technology's stock down 15%, Lumentum down 11%, and Applied Optoelectronics down 7% [2][7]. - Over the past year, Credo Technology's stock is still up 93%, Lumentum has surged 957%, and Applied Optoelectronics has increased by 438%, indicating a volatile market environment [6]. Investor Sentiment - Investors are showing caution regarding Credo's future, particularly concerning its AEC stronghold built on copper cables, despite projections of over 50% revenue growth by 2027 [5]. - The aggressive profit-taking observed is a natural response to the rapid price increases seen in the optics sector [6].