Marvell Fell After Its Google Deal. Why Did Investors Sell These Two AI Optics Stocks Too?

Marvell's shares dropped as investors believed the company's Google AI deal would take too long to impact the company's financials. On the same day, Coherent Corp. (NYSE:COHR) and Lumentum Holdings Inc. (NASDAQ:LITE) also experienced falls in their stock prices on August 28. Barron's argued that the sympathy selling was unjustified, as Marvell's actual data-center results remained robust, particularly in the optical demand area relevant to Coherent and Lumentum.

Marvell's data-center revenue grew by approximately 46% year-over-year, with analysts anticipating a further acceleration to roughly 69% and 85% in the coming quarters. The Google disappointment mainly concerned the timing of Marvell's custom-chip revenue, rather than indicating a sudden reduction in demand for high-speed optical links from hyperscalers.

The two optics companies also exhibited strong performance, with Coherent reporting $2.05 billion in quarterly revenue, with Data Center and Communications revenue increasing to $1.62 billion from $1.02 billion a year earlier. Lumentum guided to a roughly $1.25 billion revenue midpoint for the next quarter and reported that AI demand had accelerated their long-term target model by a quarter.

The shared economic channel between the two companies is the need for more AI compute, which leads to increased bandwidth requirements and subsequently drives demand for transceiver, laser, and photonics. Marvell's delayed custom-chip payoff does not directly undermine this bandwidth demand. Despite the recent sell-off, Coherent and Lumentum had already experienced significant growth in 2026 before the Friday market movement.

The market's reaction to AI optics is extreme, with expanding capacity and hardware suppliers facing potential risks if hyperscaler orders were to pause, even if long-term demand remains strong. As of the end of Q2, 105 hedge funds held COHR, down from 114 in the previous quarter, while LITE was held by 111 funds, down from 123.

D.E. Shaw increased its Coherent stake more than thirteenfold to about 1.64 million shares, and Arrowstreet Capital raised its Lumentum stake by 239% to around 1.37 million shares. The evidence suggests that Friday's weakness in Coherent and Lumentum stock prices may be more related to AI-trade contagion rather than a clear decline in optical demand.

While acknowledging the potential of COHR and LITE as investments, it is believed that certain other AI stocks offer greater upside potential and carry less downside risk.