Back to top

Why Is Applied Optoelectronics (AAOI) Stock Tumbling Today?

Read MoreHide Full Article

Shares of Applied Optoelectronics (AAOI - Free Report) were down more than 5% in morning trading Tuesday after an analyst note suggested that two of its largest customers could be taking their business to a key rival. AAOI has now tumbled more than 60% from the highs it reached in July.

According to Rosenblatt’s Jun Zhang, both Facebook (FB - Free Report) and Amazon (AMZN - Free Report) may be transferring a share of their optical equipment load to InnoLight Technology Corporation, a subsidiary of China’s Shandong Zhongji Electrical Equipment Company.

Zhang’s note suggests that the shift to InnoLight is inspired by the Chinese government’s push to grow its presence in the optical component industry amid growing demand, especially in the 5G market. Domestic tech giants Huawei and ZTE may opt for internal client-side modules in 2018, for example.

Applied Optoelectronics provides fiber-optic networking solutions, primarily for the cable television, fiber-to-the-home, and datacenter markets. The company manufactures products at varying levels of integration—from components and modules to complete turn-key equipment.

As for now, Applied sees about 80% of its total revenue from its datacenter operations. The firm’s three largest customers in this segment are Facebook, Amazon, and Microsoft (MSFT - Free Report) .

Shares of AAOI soared in the first six months of 2017 as investors recognized that the growth of these companies’ cloud operations should help suppliers like Applied, but the stock has come crashing back down amid concerns that its customers are fleeing.

As Zacks Equity Strategist Tracey Ryniec highlighted in a recent “Bear of the Day” profile of AAOI, management expects fourth quarter revenue to be flat to slightly lower than its already-soft Q3 results. “Given the lower fourth quarter guidance of just $81 to $90 million, it has likely seen erosion from either Facebook or Microsoft in the fourth quarter,” she added.

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

Zacks’ Best Private Investment Ideas

While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.

Starting today, and for the next month, you can follow all Zacks’ private buys and sells in real time. Our experts cover all kinds of trades: value, momentum, ETFs, stocks under $10, stocks that corporate insiders are buying up, and companies that are about to report positive earnings surprises. You can even look inside portfolios so exclusive that they are normally closed to new investors.

Click here for Zacks' private trades >>

More from Zacks Stocks in the News

You May Like