Coherent stock jumps on report of US ban on Chinese AI components

Shares of Coherent surged on Tuesday after a report said the Trump administration is drafting restrictions on imports of new Chinese data center components, a move that could benefit US optical networking suppliers as cloud providers seek alternative vendors.

Coherent shares climbed as much as 12% in trading following the Reuters report.

Fellow optical networking company Lumentum gained more than 5%, while Applied Optoelectronics also rallied. Meanwhile, Amazon.com shares fell more than 1.7% in trading.

According to Reuters, the Federal Communications Commission (FCC) is preparing a proposal that would prohibit imports of new Chinese optical transceivers, components that enable high-speed data transmission across fiber-optic cables inside AI data centers.

The report said the proposal could be published later this year, although it has not been finalized and could still be modified or withdrawn.

The proposed restrictions are aimed at protecting US AI infrastructure from potential cybersecurity risks.

Proposed ban could shift demand to US suppliers

A ban on new Chinese optical transceivers could force American cloud providers, including Amazon Web Services, to source more equipment from domestic manufacturers such as Coherent and Lumentum.

Reuters reported that the proposed restrictions would likely target Zhongji Innolight, one of the world's largest optical transceiver manufacturers. The company was added to the Pentagon's list of alleged Chinese military-backed companies in June.

The report said the restrictions are intended to reduce the risk of Chinese-made networking hardware being used to steal data, install malware or disrupt operations at US AI data centers.

China's embassy in Washington criticized the proposed measures and urged the United States to stop targeting Chinese companies.

"China will take all necessary measures in response to any action that causes material harm to its interests," it added.

Nvidia partnerships strengthen Coherent's AI positioning

Coherent has already strengthened its position in the AI infrastructure supply chain through partnerships with Nvidia.

The chipmaker signed multi-year agreements with both Coherent and Lumentum in March, including billions of dollars in procurement commitments and a $2 billion investment in each company to secure production capacity for next-generation co-packaged optics technology.

The agreements position both companies as strategic suppliers for the growing AI data center market, where demand for high-speed optical networking equipment continues to increase.

Supply chain implications remain in focus

According to Counterpoint Research, Zhongji Innolight controls approximately 27% of the global data center transceiver market.

Reuters reported that Coherent and Lumentum offer competing technologies but currently lack the manufacturing scale to fully replace Chinese suppliers. Innolight also generates about 90% of its revenue outside China.

The FCC has previously introduced similar restrictions targeting Chinese drones, routers, robots and power inverters through its Covered List framework.

The report said that the agency is considering a similar approach for optical transceivers by banning imports of new Chinese models while exempting many non-Chinese suppliers.

While the proposal remains under review, investors responded positively to the possibility that tighter restrictions on Chinese networking equipment could increase demand for US-based optical component manufacturers, sending Coherent shares sharply higher.