Key Highlights

● Ciena rose as optical-networking stocks rallied.

● Lumentum's chief executive said capacity is sold out through early 2029.

● Applied Optoelectronics gained $3.74 to $109.64.

● Tech sector funds took in $4.53 billion during the week.

Ciena (NYSE:CIEN) rose on Friday, October 9, as optical-networking stocks rallied on bullish comments from a major industry supplier. The spark came from Lumentum (NASDAQ:LITE) chief executive Michael Hurlston, who said in Tokyo that his company's optical capacity is sold out through early 2029.

"We are completely sold out, with no end in sight," Hurlston said, according to market data. He added that Lumentum cannot meet a large share of Demand for some products through next year, and that relief is unlikely before 2029 to 2030.

For investors, comments like that from one supplier read across to the wider industry. If demand for the lasers, transceivers and other optical parts that carry data between AI servers is outstripping supply, companies that build optical networks may also benefit.

Where Ciena fits

Ciena makes optical networking equipment and software used by telecom carriers, cloud providers and large data-center operators to move huge volumes of data over fibre. Its systems connect data centres to each other and carry traffic across long-haul and metro networks. As AI computing grows, operators need more bandwidth between facilities, which has made the company part of the AI infrastructure trade.

The optics group moved together

Lumentum itself rose solidly on Friday. Applied Optoelectronics (NASDAQ:AAOI) gained $3.74 to close at $109.64 after jumping earlier in the day, and Coherent (NYSE:COHR) climbed. Glass and fibre maker Corning also gained, according to market data.

Optical stocks had a rough Thursday. On October 8, a report said that OpenAI's annualized Revenue was about $50 billion at the end of September, roughly $20 billion below a figure that had circulated earlier, and AI-linked stocks sold off. On Friday, a report said OpenAI expects to reach or exceed $70 billion by year-end, and much of the AI complex recovered.

The rebound was uneven, though. Software and Cybersecurity led, while semiconductors lagged. The PHLX Semiconductor index slipped, Nvidia (NASDAQ:NVDA) fell $1.20 to $229.28 and AMD (NASDAQ:AMD) dropped $12.58 to $608.10. Michael Monaghan, portfolio manager at Founder ETFs, said, "Chips have been this year's story". On Friday, optics stood out within hardware.

The market backdrop

The S&P 500 rose 46.18 points to 7,811.54, ending just shy of its record close. The Nasdaq Composite gained 172.83 points to 27,366.17 and the Dow climbed 423.31 points to 51,654.95. On the NYSE, gainers outnumbered losers by about 1.65 to 1.

Risks remain for richly valued tech shares. The 10-year Treasury Yield is near a 24-year high, and the Fed raised rates in September for the first time since 2023. Fed Governor Christopher Waller said Thursday that, "For at least the near term, policy will be focused on the Inflation side of our mandate." Deutsche Bank (NYSE:DB)'s George Saravelos warned, "The biggest systemic risk in the market next year is not France but 'something going wrong' in the AI ecosystem".

Fund flows show investors still favour tech, however. Tech sector funds took in $4.53 billion during the week, according to market data, even as US Equity funds overall saw outflows of $5.11 billion.

Earnings Season Will Test Whether the Optics Rally Holds

The optics rally will be tested as third-quarter Earnings season gets under way. Taiwan Semiconductor reports on Thursday, October 15, giving an early read on AI hardware demand. September consumer prices arrive Wednesday, October 14, with producer prices and retail sales the next day. Bank earnings run October 13 to 16, and the Fed meets October 27 and 28. US stocks trade Monday, October 12, while bond markets close for Columbus Day.