Applied Optoelectronics (AAOI) stock skyrocketed 21.75% during intraday trading on Tuesday, leading a broad rally in the optical communications sector. The surge came as investors reacted to a Reuters report that the Trump administration is drafting a ban on U.S. imports of new Chinese-made optical transceivers, a critical component in data centers.

The Federal Communications Commission is leading the effort to prohibit imports of these devices, citing national security concerns and the need to protect AI infrastructure from potential cyber threats. The ban, which could be published and take effect later this year, would force major cloud providers to shift orders to non-Chinese suppliers, directly benefiting U.S.-based optical networking firms like Applied Optoelectronics, Coherent, and Lumentum.

The news triggered a sharp repricing across the sector, with AAOI shares surging to new session highs. The company, which manufactures fiber-optic networking products, is seen as a key beneficiary of any supply chain shift away from Chinese competitors, particularly Zhongji Innolight, which currently holds a dominant share of the global data center transceiver market.