Applied Optoelectronics (AAOI) plummeted 6.31% intraday on Wednesday, as the stock faced significant selling pressure amid broader bearish sentiment in the optical communications sector.

The sharp decline follows a pessimistic assessment regarding the adoption timeline of Co-Packaged Optics (CPO) technology. A SemiAnalysis report indicated that large-scale CPO adoption may be delayed until 2028 or 2029, with system-level yields potentially as low as 19.4%, far below market expectations for near-term rapid volume growth. This outlook has been reinforced by Morgan Stanley's view aligning with the report, intensifying concerns and creating bull-bear divergence in the market.

As a leading supplier of fiber-optic networking products for data center and telecommunications markets, Applied Optoelectronics is particularly exposed to shifts in optical technology adoption timelines. The company's position as one of the few U.S.-based manufacturers with in-house indium phosphide laser production capability for AI optical modules makes it sensitive to delays in next-generation optical packaging technologies like CPO.