Optics Run Hot as Chip Leaders Pause for Breath

Dear readers,

The AI trade is changing leaders. Optical suppliers are still climbing, while the classic chip names are consolidating. The S&P 500 sits just below its record from October 6, the ten-year Treasury yield holds at a good 5.2 percent, and Wednesday brings the September inflation reading. Investors looking for tech beyond Nvidia now have to tell bottleneck winners from rebound candidates, and the two groups are not priced alike.

Lumentum: Sold Out Until 2029, and the Stock Knows It

Lumentum CEO Michael Hurlston said on Friday that the company’s optical capacity is sold out until early 2029. He does not expect relief before 2029 or 2030. Roughly 70 percent of demand for certain products will go unmet through the end of next year.

The stock trades around 980 euros (about $1,098) on Monday, after hitting a 52-week high of 1,014.80 euros on Friday. It is up a good 200 percent since January and more than 600 percent over twelve months.

Coherent, Ciena, Corning and Applied Optoelectronics rose alongside it. On Monday they are giving back a little, with Coherent and Applied Optoelectronics down just under 2 percent. Deutsche Bank supplied a reason for caution on Friday, cutting US tech from “Overweight” to “Neutral.” Tech has beaten the rest of the market by 18.1 percentage points since July 29, and the bank sees up to 16 points of relative downside.

Meanwhile, the industry is racing to push copper out of AI racks. Credo has launched a new optical cable, and Lumentum, Astera Labs and Corning have shown a joint demonstration. Scarcity protects margins. But a good part of it is already in the price, and new competitors will come.

Memory and AMD: A Pullback Is Not a Floor

Semiconductors ended last week down about 4 percent. Intel lost 12 percent, and Skyworks and Teradyne fell roughly 10 percent each. Micron trades near 899 euros (about $1,007) on Monday, almost 19 percent below its 52-week high of 1,103.80 euros. SanDisk also fell sharply on Friday.

Goldman Sachs on Monday named SanDisk, SK Hynix and Samsung Electronics as beneficiaries of a new class of high-performance flash memory, which is meant to ease the memory bottleneck in AI workloads. Micron is not on that list.

Microsoft has also unveiled its third-generation Maia chip and plans to run most inference requests on its own hardware. That weighs on Nvidia over time, though its stock is barely moving on Monday. AMD is down about 1 percent at roughly 536 euros, a good 8 percent below its October 6 high.

A rebound is possible in both names, but it is not assured without a fresh push. The next one arrives Thursday with TSMC’s results. Anyone buying before then is betting that the numbers will support the sector.

ASML and STMicroelectronics: Buybacks With Different Messages

ASML repurchased 280,000 of its own shares between October 5 and 9 for about 456 million euros, at prices between roughly 1,605 and 1,657 euros. That is steady, scheduled buying under the program announced in January.

STMicroelectronics bought 346,538 shares over the same period for a good 17 million euros, at an average of 49.24 euros. Those purchases serve employee stock options and are not a signal from management about the share price.

Should investors sell immediately? Or is it worth buying Lumentum?

The more interesting part is where the stock stands. It trades around 46.35 euros on Monday, below that buyback average and about a third under its 52-week high of 70.80 euros. It is still up a good 100 percent since January. That makes STMicro one of the rebound candidates outside the megacaps, but here too the next real test is the industry data due this week.

Hensoldt and Rheinmetall: Analyst Tailwind Meets Ceasefire Doubt

Hensoldt is up 4.6 percent to 80 euros on Monday. Barclays raised its price target to 101 euros from 97 euros but kept its “Equalweight” rating. Jefferies upgraded the stock to “Buy” with a target of 98 euros.

Rheinmetall gains 3.0 percent to 964.4 euros. Morgan Stanley points to possible further orders from current defense budgets before year-end, and to a seasonal sector rally.

Politics offers the counterargument. President Trump has announced an energy ceasefire between Russia and Ukraine. The Kremlin has not commented, and Ukraine already accuses Russia of attacking a power plant in Kharkiv. Analyst sentiment supports the sector, but a durable ceasefire would weigh on it in the short term. And with Barclays staying at “Equalweight” despite the higher target, the gains do not rest on a broad buy consensus.

Moderna: One Report Lifts the Stock to a Five-Year High

Moderna jumped $28 to $225 on Friday, its highest level since 2021. The trigger was reports of a planned cancer vaccine initiative tied to the National Institutes of Health, starting in December and focused on pancreatic, liver and colorectal cancers.

The stock is also being added to the Nasdaq 100. It rose 18 percent on the week and is up more than 650 percent since January. On Monday it trades around 201 euros, after touching a new 52-week high of 205.05 euros.

The move rests on a report about an initiative, not on confirmed contracts or revenue. After a run like this, disappointment over details or timing could be enough to trigger heavy profit-taking. Anyone buying now should treat Moderna as a bet on news.

The Week Ahead

The big banks start reporting quarterly results on Tuesday, and Wednesday brings the US inflation figure for September. Economists polled by Reuters expect 3.7 percent headline inflation and 2.5 percent core.

The Fed raised rates in September for the first time since 2023, and another hike in December is largely priced in. A reading above forecasts would push yields higher and hit richly valued tech names such as Lumentum hardest. On Thursday, TSMC’s results will test the rebound candidates in chips.

The takeaway is simple. Scarcity is the best story in this market, and it is exactly what the market already pays for. The better opportunities may lie where the pullback has been sharpest and the next data point is close, provided the inflation number does not intervene first.

Best regards,
The StocksToday.com Editorial