Lumentum Holdings led the S&P 500's gainers on Monday as optical stocks started to stage a recovery from the previous week's declines.

The company's stock (LITE) was up 8.2% at the close on Monday, while shares of fellow optical connectivity maker Coherent (COHR) finished up 5.8%. Shares of Ciena (CIEN) also climbed 4.9% on Monday.

Evercore ISI analyst Amit Daryanani pointed to "renewed interest" in the optical sector following last week's selloff. Many investors had also likely been waiting for artificial-intelligence startup Anthropic to release its S-1 filing for its initial public offering before piling back into the trade, he said.

Anthropic filed for its IPO on Monday and its financials generally offered a lift to chip stocks.

Meanwhile, earnings results in the AI sector so far look "relatively healthy from a fundamental perspective," he said, and with Meta Platforms' (META) announcement of an equity raise and SpaceX's (SPCX) commitment to $40 billion in financing for chips and other AI hardware, investors got a sign of "ongoing durability" in the AI trade on Monday.

Daryanani also pointed to expectations for the Federal Communications Commission to limit imports of optical transceivers from foreign suppliers early next year. The decision "would effectively remove Chinese suppliers from the U.S. market" for next-generation 3.2T optical transceivers, he said. That would be "notable" given that China makes about two-thirds of these components, Daryanani said, citing an expert.

While that would provide a challenge to AI deployment, any restrictions on China would in turn benefit U.S. manufacturers and allied suppliers, Daryanani said.

Additionally, news out of Asia over the weekend pointing to a potential slowdown in supply growth for Indium phosphide, or InP, a semiconductor material, was another key driver on Monday, he said. That would indicate Chinese suppliers are having challenges ramping up enough capacity of InP that can meet current speed requirements, according to Daryanani.

The traditional optics cycle typically lasts five years, he said, but AI has led to "near yearly increases in lane speeds," referring to the rate at which data is traveling.

Faster lane speeds and the growing number of interconnects needed for AI data centers should continue to drive demand for optics, Daryanani said. He noted that more data-center connectivity needs will also drive demand for lasers, including InP-based ones. At the same time, expanding manufacturing capacity and qualifying products will take time, meaning supply will remain limited, Daryanani said.

Together, "these dynamics support continued demand for suppliers that can add capacity and deliver products at the required speeds," Daryanani said.