Applied Optoelectronics, Inc. (NASDAQ: AAOI) shares are falling Monday afternoon, sliding alongside the broader fiber optic connectivity sector as surging Treasury yields spark concerns over a potential slowdown in enterprise AI infrastructure spending.

Here's what investors need to know.

Spiking Yields and AI Capex Concerns

The Monday afternoon sell-off in capital-intensive technology hardware comes as the 10-year Treasury yield climbs to 5.27%, its highest level since mid-2007. With traders now pricing in a 65% probability of an October Federal Reserve rate hike to combat energy-driven inflation, corporate borrowing costs are escalating rapidly.

For fiber optic suppliers such as Applied Optoelectronics that rely heavily on hyperscale data center expansions, these inflated capital costs threaten to pressure the massive AI buildout capex plans of their largest customers.

Production Constraints vs. Macro Headwinds

This macroeconomic friction complicates what has otherwise been a strong fundamental growth narrative for the company. During its second-quarter earnings presentation on Aug. 6, Applied Optoelectronics highlighted accelerating adoption of its next-generation products, with 800G optical transceiver revenues jumping more than 10-fold year-over-year.

However, despite issuing robust third-quarter revenue guidance of $255 million to $290 million, management noted that near-term upside is currently being capped by manufacturing capacity limits and tight supply of critical components.

With production constraints already keeping a lid on output through the fall of 2026, Monday's spike in benchmark bond yields could exacerbate fears that any delayed or downsized data center spending could severely compress the stock's forward-looking valuation multiples.

AAOI Stock Falls Monday Afternoon

AAOI Price Action: Applied Optoelectronics shares closed down 4.52% at $96.82 on Monday, according to market data.