ZJ INNOLIGHT's stock plummeted 6.34% during intraday trading on Friday, erasing earlier gains that had seen the shares surge over 7% in the morning session. The sharp reversal came as focus shifted to rival Applied Optoelectronics Inc. (AAOI) and renewed concerns over a potential U.S. ban on Chinese optical modules.

During its earnings call, AAOI management stated that AI infrastructure demand remains robust, with customer requirements exceeding its current supply capacity by 20% to 40%. The company also announced that its 800G revenue is expected to grow nearly fivefold sequentially in the third quarter, and its first 1.6T product is set to complete customer certification within weeks. As a direct U.S.-based producer of high-speed optical modules, AAOI is viewed as a primary substitute for Chinese suppliers should a ban materialize.

Recent rumors of a U.S. FCC ban on Chinese optical modules have continued to unsettle the sector. Although ZJ INNOLIGHT stated that the FCC has not yet issued any restrictive documents, the combination of AAOI's strong guidance and the unresolved ban speculation appears to have prompted investors to lock in profits from the morning rally, leading to the afternoon sell-off.