Shares of Coherent (COHR) surged as much as 12% on Tuesday following a Reuters report that the Trump administration is drafting restrictions on imports of new Chinese data center components. The proposed measures, which could target optical transceivers used in AI data centers, are seen as a potential boon for US optical networking suppliers as cloud providers seek alternative vendors.
Fellow optical networking company Lumentum (LITE) gained more than 5%, while Applied Optoelectronics also rallied. In contrast, Amazon.com (AMZN) shares fell more than 1.7% in trading, reflecting concerns that its cloud division, Amazon Web Services, could face supply chain disruptions.
FCC proposal targets Chinese optical transceivers
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 The proposal could be published later this year, though it has not been finalized and could still be modified or withdrawn.
The restrictions are aimed at protecting US AI infrastructure from potential cybersecurity risks, including data theft, malware installation, or operational disruption. The report indicated that the measures would likely target Zhongji Innolight, one of the world's largest optical transceiver manufacturers, which was added to the Pentagon's list of alleged Chinese military-backed companies in June.
Potential shift in 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. However, Reuters noted that Coherent and Lumentum offer competing technologies but currently lack the manufacturing scale to fully replace Chinese suppliers. Zhongji Innolight controls approximately 27% of the global data center transceiver market, according to Counterpoint Research, and generates about 90% of its revenue outside China.
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. In March, Nvidia signed multi-year agreements with both Coherent and Lumentum, 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. These 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.
The proposed restrictions could accelerate this trend, as US cloud providers look to diversify their supply chains. The FCC has previously introduced similar restrictions targeting Chinese drones, routers, robots, and power inverters through its Covered List framework. The report said 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. The news also comes amid a broader AI-driven rally in tech stocks, with strong earnings from AI-related companies fueling market optimism.
For investors, the potential ban highlights the growing importance of supply chain security in the AI era. As AI deals carry both opportunities and risks, the optical networking sector could see significant shifts in market share if the restrictions are enacted. However, the proposal is still in its early stages, and its final scope remains uncertain.
This article is for informational purposes only and does not constitute financial advice.
