Key Takeaways
- Shares of AAOI climbed 8.4% to $134.59 following the company’s first adjusted profit since 2023
- Second-quarter revenue surged 86% from the prior year to $191.9 million, surpassing the $190.5 million consensus
- Third-quarter EPS outlook of $0.11-$0.26 fell short of the $0.28 analyst consensus
- Company anticipates starting 1.6 terabit transceiver deliveries by the close of Q3 2026
- Raymond James boosted its target to $178; Needham lowered to $190, with both firms keeping positive ratings
Shares of Applied Optoelectronics (AAOI) rallied 8.4% to $134.59 on Friday following the company’s announcement of its first adjusted quarterly profit in over a year.
Applied Optoelectronics, Inc., AAOI
Trading activity was robust, with approximately 14 million shares exchanged by 11 a.m. ET, surpassing the volume seen in significantly larger technology companies such as AMD and Broadcom.
The company delivered adjusted earnings of $0.06 per share, exceeding analyst projections of $0.02. Second-quarter revenue jumped 86% year-over-year to $191.9 million, slightly beating the consensus estimate of $190.5 million, representing the fifth straight quarter of record-breaking sales.
However, forward-looking guidance disappointed investors. The company’s third-quarter adjusted EPS forecast of $0.11 to $0.26 fell below Wall Street’s expectation of $0.28.
Wall Street Maintains Positive Stance Despite Weak Guidance
Raymond James increased its price objective to $178 from $151 while maintaining an Outperform rating. The firm highlighted that optical components remain in short supply and that geopolitical factors are benefiting AAOI’s competitive position.
Needham reduced its price target from $220 to $190 but retained its Buy recommendation. Analyst Ryan Koontz emphasized growing demand for optical transceivers and a market shift away from Chinese suppliers as creating a “clear path to transformative revenue growth.”
Rosenblatt maintained its Buy rating with a $220 target, expressing a favorable view of the quarterly performance despite ongoing supply chain challenges and capacity expansion delays.
Future Growth Indicators
Applied Optoelectronics plans to commence shipments of 1.6 terabit transceivers by the conclusion of the third quarter. The company forecasts combined revenue from its 1.6T and 800G product lines to reach approximately $330 million in the fourth quarter of 2026.
According to Raymond James, AAOI currently lags industry frontrunners by two to three years in 800G technology development. A successful high-volume 1.6T product launch in Q4 would close that technology gap to approximately one year.
Major cloud providers Amazon and Microsoft are confirmed customers, while a third unnamed hyperscale client has also been placing substantial orders throughout this year.
Applied Optoelectronics invested $565.5 million in capital expenditures during the second quarter and intends to maintain elevated investment levels through year-end as it constructs a new manufacturing facility in Texas.
CFO Stefan Murry informed investors that the new facility will provide AAOI with “the largest AI-focused data-center transceiver production capacity in the U.S.” upon completion.
The stock carries notable short interest, with over 13% of the float currently sold short, and holds the position as the largest holding in the Roundhill Meme Stock ETF.
Despite the meme stock association, valuation multiples have compressed significantly. The shares currently trade at 33 times forward earnings, substantially lower than the 80-times multiple seen in early May, and at a discount compared to optical industry peers Coherent and Lumentum.
On a year-to-date basis, AAOI shares have gained approximately 281%, with a trailing twelve-month return of roughly 537%.
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