Applied Optoelectronics (AAOI) experienced a pre-market plunge of 5.30%, reflecting significant downward pressure on the optical communications stock.

The decline was primarily driven by persistent bearish sentiment surrounding co-packaged optics (CPO) mass production timelines. Recent industry research indicates that large-scale CPO adoption may be delayed until 2028 or even 2029, with system-level yield potentially as low as approximately 19.4%, which is far below market expectations for rapid near-term volume ramp-up.

While NVIDIA has stated its CPO switches will begin mass production as planned in the second half, Morgan Stanley's assessment largely aligns with bearish views on CPO volumes falling short of expectations. This has intensified bull-bear divergence and amplified selling pressure on high-valuation optical communication names like Applied Optoelectronics, which is among the few U.S.-based AI optical module manufacturers with proprietary InP laser production capabilities.