Corning issued disappointing third-quarter sales guidance, as growth is being squeezed by production limits on its booming AI connectivity products and broader drags in consumer electronics.

While demand for next-generation data centers remains hot, executives signaled that output is capped by current manufacturing limits as it rushes to build out new capacity. Corning makes the ultra-dense optical fibers used to connect the thousands of specialized chips inside AI data centers. But combined with weakness in consumer mobile devices, the supply constraints are tempering revenue, even as orders keep coming in.

"We continue to have the enviable situation of if we could make more, we could sell more," Chief Executive Wendell Weeks told analysts on a call, noting that the company is targeting capital expenditures of $2 billion this year to expand production and meet growing demand.

Corning expects core sales for the current quarter to increase by about 16%, to between $4.9 billion and $5 billion. Analysts expect $5 billion for the quarter.

Shares fell by 20% at $114.95 on Tuesday, on pace for the largest percent decrease since July 31, 2002, when it fell 35%. Corning's stock is still up 34% year-to-date and over double what it was a year ago.

Investors have rallied behind Corning's bet that the massive infrastructure demands of AI will drive its next wave of growth, and its shift away from stagnant telecom-carrier spending toward enterprise hyperscalers has won over investors.

At the same time, high memory prices are squeezing smartphone manufacturers, leading Corning to project full-year global handheld unit volumes to be down by a mid-teens percentage. Corning is known for its Gorilla Glass, the durable screen glass that is used on millions of smartphones, laptops and wearables, but the current hardware dynamic is acting as a seasonal drag.

"I think the areas that maybe aren't going to grow at normal seasonality would be things that might be impacted by memory, like the handheld market in general will be significantly weaker than the first half of the year," Chief Financial Officer Ed Schlesinger said in the call.

Sales in the second quarter rose 17% to $4.74 billion, topping analyst forecasts. Revenue increased by 32% in its optical communications sector, driven by substantial growth in enterprise networks, with sales of its generative AI products expanding at an even quicker rate.

Corning's solar segment swung to a loss of $7 million, from a profit of $2 million a year earlier, despite sales rising 90% after the completion of an extended maintenance shutdown and equipment upgrade at its solar-wafer facility. Management expects profitability to improve in the third quarter, the company said.

Net income for the quarter came to $559 million, or 64 cents a share, compared with $469 million, or 54 cents a share, a year earlier. Core earnings were 78 cents a share, ahead of the 76 cents a share expected by analysts.