TLDR
- AAOI jumped 8.4% to $134.59 after reporting its first adjusted quarterly profit since 2023
- Revenue rose 86% year over year to $191.9 million, beating the $190.5 million estimate
- Q3 guidance missed, with EPS guidance of $0.11-$0.26 vs. the $0.28 analyst expectation
- 1.6 terabit transceiver shipments are expected to begin at the end of Q3 2026
- Raymond James raised its price target to $178; Needham trimmed to $190, both maintaining bullish ratings
Applied Optoelectronics (AAOI) jumped 8.4% to $134.59 on Friday after the optical transceiver maker posted its first adjusted profit since 2023.
Applied Optoelectronics, Inc., AAOI
The stock saw nearly 14 million shares change hands by 11 a.m. Eastern time, outpacing trading volume in much larger names like AMD and Broadcom.
Adjusted earnings came in at $0.06 per share, topping the $0.02 analyst estimate. Revenue climbed 86% year over year to $191.9 million, edging past forecasts of $190.5 million, and marked a fifth consecutive quarter of record sales.
The good news stopped there, at least for the near term. Q3 guidance came in short, with the company projecting adjusted EPS of $0.11 to $0.26 against the $0.28 Wall Street had penciled in.
Analysts Stay Bullish Despite Guidance Miss
Raymond James raised its price target to $178 from $151, keeping an Outperform rating. The firm noted that optics remain under-supplied and that geopolitics are working in AAOI’s favor.
Needham trimmed its target from $220 to $190, but held its Buy rating. Analyst Ryan Koontz pointed to soaring optical transceiver demand and a shift away from Chinese vendors as a “clear path to transformative revenue growth.”
Rosenblatt also kept its Buy rating with a $220 price target, viewing the quarterly result positively despite supply constraints and delays in capacity expansion.
Medium-Term Demand Signals
The company expects to begin shipping 1.6 terabit transceivers by the end of Q3. Combined revenue from 1.6T and 800G products is projected to reach around $330 million in Q4 2026.
Raymond James noted that AAOI is currently two to three years behind industry leaders on 800G technology. A successful 1.6T volume launch in Q4 would narrow that gap to roughly one year.
Amazon and Microsoft are known clients, and an undisclosed third hyperscaler has also been making large purchases this year.
The company made $565.5 million in capital expenditures in Q2 and plans to keep investing through the second half of the year as it builds a new Texas facility.
CFO Stefan Murry told investors the facility will give AAOI “the largest AI-focused data-center transceiver production capacity in the U.S.” once complete.
AAOI carries some meme stock baggage. Over 13% of its float is sold short, and it sits as the top holding in the Roundhill Meme Stock ETF.
But the valuation has come down. The stock now trades at 33 times forward earnings, down from over 80 times in early May, and at a discount to optical peers Coherent and Lumentum.
Year to date, the stock is up around 281%, and roughly 537% over the past 12 months.
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