What happened

Shares of Applied Optoelectronics Inc. (NASDAQ:AAOI) were down 11.2% as of 3:15 p.m. EDT Tuesday after an analyst downgraded two of the communications equipment specialist's peers. 

More specifically, B. Riley analyst Dave Kang downgraded both II-VI and Fabrinet to neutral from buy this morning, leaving shares of the two companies down a more modest 2.9% and 3.5%, respectively, as of this writing. 

Stock market data and arrow chart indicating losses.


So what

To justify his relative bearishness for II-VI on one hand, Kang noted that demand for certain of II-VI's optical products "has become choppy," while U.S. tariffs could hurt both its laser and optical segments. On the other hand, he pointed out that while Fabrinet could "benefit from an optical shift" if those tariffs are put into place, that shift won't happen immediately and could be prefaced by tariff-related project delays from some customers. Naturally, these same concerns extend to the broader optical industry, including fiber-optic networking products providers like Applied Optoelectronics.

Now what

If you're wondering why Applied Optoelectronics endured a steeper decline today than its freshly downgraded peers, keep in mind that shares of the Texas-based company had rebounded more than 80% from their 52-week low set in late March as of yesterday's close. It's also worth noting that Kang has previously argued that Applied Opto could not only suffer lost orders if proposed tariffs on Chinese goods are implemented this month but also might move to shift manufacturing out of China and into Taiwan, where costs are almost certainly higher.

In the end, given these uncertainties and its torrid rise in recent months, it's no surprise to see Applied Optoelectronics stock falling in response today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.