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FN vs. AAOI: Which Optical Components Stock Should You Buy Right Now?
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Key Takeaways
Fabrinet posted record $1.13B revenues in Q2 FY26, driven by strong optical and telecom growth.
AAOI is ramping 800G transceivers but rising operating expenses pressure weigh on near-term outlook.
FN trades at 3.52X forward sales vs AAOI's 5.80X, offering better valuation appeal.
Fabrinet (FN - Free Report) and Applied Optoelectronics Inc. (AAOI - Free Report) both operate in the optical networking and communications space. While Fabrinet provides advanced optical packaging and precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers. Applied Optoelectronics designs and manufactures fiber-optic networking products for Internet data centers, cable television, telecommunications and fiber-to-the-home end markets.
According to a report from Fortune Business Insights, the global optical communication systems and networking market was valued at $36.87 billion in 2025. This is expected to reach $74.21 billion by 2034 from $38.99 billion in 2026, witnessing a CAGR of about 8.38%. Both Fabrinet and Applied Optoelectronics are well-positioned to benefit from this growth because their technologies can help meet rising demand for high-speed optical components used in AI-driven data centers and next-generation networking and communications infrastructure.
From an investment point of view, one stock offers a more favorable outlook than the other right now. Let’s break down their fundamentals, growth prospects, market challenges and valuation to determine which stock offers a more compelling investment case.
The Case for Fabrinet Stock
Fabrinet is witnessing strong growth in its optical communications business. Revenues from the Optical communications business reached $833 million, up 29% year over year and 11% on a sequential basis in the second quarter of fiscal 2026. Optical communications remained the largest contributor to Fabrinet’s business and played a key role in pushing total revenues to a record $1.13 billion for the second quarter.
The telecom business was the biggest driver of optical communications growth. Telecom revenues surged 59% year over year to $554 million and grew 17% on a sequential basis as demand across multiple customers remained strong. Revenues from data center interconnect products reached $142 million, up 42% on a year-over-year basis. Here, growth is being driven by rising shipments of coherent optical modules, particularly 400ZR and 800ZR modules used in data center interconnect networks.
Datacom performance also showed improvement during the second quarter. Datacom revenues totaled $278 million, up 2% on a sequential basis. Management expects the Datacom segment to witness continued sequential growth, backed by strong demand where the company continues to ship significant volumes of high-speed transceivers used in large data center networks.
Looking ahead, Fabrinet expects strong demand for optical products used in telecom and data center networks to support strong sequential growth in the company's optical communications segment.
The Case for Applied Optoelectronics Stock
Applied Optoelectronics is preparing to ramp up production of its 800G optical transceivers as demand from hyperscale data center customers continues to rise. Management expects its 800G optical transceivers to become the largest contributor within the company’s data center segment starting in the second quarter of 2026.
In the fourth quarter of 2025, AAOI reported data center revenues of $74.9 million. The metric increased 69% year over year and 70% sequentially. Growth was driven by strong demand for high-speed transceivers. Sales of 400G products rose 141% year over year, while 100G product sales increased 54% on a year-over-year basis.
AAOI ended 2025 with about 90,000 units per month of 800G production capacity. The company forecasts demand for 800G modules to exceed the company’s production capacity through mid-2027. To support this demand, AAOI is expanding its manufacturing footprint in Texas. The company has signed a lease for an additional building in Sugar Land, Texas, where construction has already started. By the end of 2026, the company expects to have the capability to produce more than 500,000 units per month of 800G and 1.6T products.
However, a key concern is the sharp increase in operating expenses. In the fourth quarter, non-GAAP operating expenses rose to $49.3 million compared with $31.5 million in the same quarter last year. As a percentage of revenues, operating expenses rose to 37% in the fourth quarter, up from 31% in the year-ago quarter. Operating expenses are expected to remain high in the near term. AAOI projects non-GAAP operating expenses to stay in the range of $50-$57 million per quarter in 2026. This suggests that spending will stay elevated as the company continues to invest in its business.
How Do Earnings Estimates Compare for FN & AAOI?
The Zacks Consensus Estimate for Fabrinet’s fiscal 2026 earnings is pegged at $13.58 per share, revised upward by 29 cents over the past 60 days. The consensus estimate for fiscal 2027 is pegged at $16.18 per share, revised upward by 4.9% over the past 60 days.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Applied Optoelectronics’ 2026 earnings is pegged at 84 cents per share, up by 29 cents over the past 30 days. The consensus estimate for 2027 is pegged at $3.39 per share, unchanged over the past 30 days.
Image Source: Zacks Investment Research
FN vs. AAOI: Price Performance and Valuation
In the past six months, shares of FN and AAOI have surged 38.1% and 228%, respectively.
FN vs. AAOI: 6-Month Price Return Performance
Image Source: Zacks Investment Research
Currently, Fabrinet is trading at a forward sales multiple of 3.52X, lower than Applied Optoelectronics’ forward sales multiple of 5.80X. Fabrinet’s reasonable valuation makes it more attractive for investors looking for value and stability.
FN vs. AAOI: Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
Conclusion: Buy FN, Hold AAOI Right Now
Both Fabrinet and Applied Optoelectronics are key players in the optical communication systems and networking space, but their near-term outlooks are quite different. AAOI faces near-term risks from rising operating expenses, which could hurt the company’s prospects in the near term.
Fabrinet is showing steady growth across its telecom and data center segments, supported by strong demand for high-speed optical products. FN’s reasonable valuation offers some downside protection as well, making it a better choice for investors looking for stability and steady upside.
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FN vs. AAOI: Which Optical Components Stock Should You Buy Right Now?
Key Takeaways
Fabrinet (FN - Free Report) and Applied Optoelectronics Inc. (AAOI - Free Report) both operate in the optical networking and communications space. While Fabrinet provides advanced optical packaging and precision optical, electro-mechanical and electronic manufacturing services to original equipment manufacturers. Applied Optoelectronics designs and manufactures fiber-optic networking products for Internet data centers, cable television, telecommunications and fiber-to-the-home end markets.
According to a report from Fortune Business Insights, the global optical communication systems and networking market was valued at $36.87 billion in 2025. This is expected to reach $74.21 billion by 2034 from $38.99 billion in 2026, witnessing a CAGR of about 8.38%. Both Fabrinet and Applied Optoelectronics are well-positioned to benefit from this growth because their technologies can help meet rising demand for high-speed optical components used in AI-driven data centers and next-generation networking and communications infrastructure.
From an investment point of view, one stock offers a more favorable outlook than the other right now. Let’s break down their fundamentals, growth prospects, market challenges and valuation to determine which stock offers a more compelling investment case.
The Case for Fabrinet Stock
Fabrinet is witnessing strong growth in its optical communications business. Revenues from the Optical communications business reached $833 million, up 29% year over year and 11% on a sequential basis in the second quarter of fiscal 2026. Optical communications remained the largest contributor to Fabrinet’s business and played a key role in pushing total revenues to a record $1.13 billion for the second quarter.
The telecom business was the biggest driver of optical communications growth. Telecom revenues surged 59% year over year to $554 million and grew 17% on a sequential basis as demand across multiple customers remained strong. Revenues from data center interconnect products reached $142 million, up 42% on a year-over-year basis. Here, growth is being driven by rising shipments of coherent optical modules, particularly 400ZR and 800ZR modules used in data center interconnect networks.
Datacom performance also showed improvement during the second quarter. Datacom revenues totaled $278 million, up 2% on a sequential basis. Management expects the Datacom segment to witness continued sequential growth, backed by strong demand where the company continues to ship significant volumes of high-speed transceivers used in large data center networks.
Looking ahead, Fabrinet expects strong demand for optical products used in telecom and data center networks to support strong sequential growth in the company's optical communications segment.
The Case for Applied Optoelectronics Stock
Applied Optoelectronics is preparing to ramp up production of its 800G optical transceivers as demand from hyperscale data center customers continues to rise. Management expects its 800G optical transceivers to become the largest contributor within the company’s data center segment starting in the second quarter of 2026.
In the fourth quarter of 2025, AAOI reported data center revenues of $74.9 million. The metric increased 69% year over year and 70% sequentially. Growth was driven by strong demand for high-speed transceivers. Sales of 400G products rose 141% year over year, while 100G product sales increased 54% on a year-over-year basis.
AAOI ended 2025 with about 90,000 units per month of 800G production capacity. The company forecasts demand for 800G modules to exceed the company’s production capacity through mid-2027. To support this demand, AAOI is expanding its manufacturing footprint in Texas. The company has signed a lease for an additional building in Sugar Land, Texas, where construction has already started. By the end of 2026, the company expects to have the capability to produce more than 500,000 units per month of 800G and 1.6T products.
However, a key concern is the sharp increase in operating expenses. In the fourth quarter, non-GAAP operating expenses rose to $49.3 million compared with $31.5 million in the same quarter last year. As a percentage of revenues, operating expenses rose to 37% in the fourth quarter, up from 31% in the year-ago quarter. Operating expenses are expected to remain high in the near term. AAOI projects non-GAAP operating expenses to stay in the range of $50-$57 million per quarter in 2026. This suggests that spending will stay elevated as the company continues to invest in its business.
How Do Earnings Estimates Compare for FN & AAOI?
The Zacks Consensus Estimate for Fabrinet’s fiscal 2026 earnings is pegged at $13.58 per share, revised upward by 29 cents over the past 60 days. The consensus estimate for fiscal 2027 is pegged at $16.18 per share, revised upward by 4.9% over the past 60 days.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Applied Optoelectronics’ 2026 earnings is pegged at 84 cents per share, up by 29 cents over the past 30 days. The consensus estimate for 2027 is pegged at $3.39 per share, unchanged over the past 30 days.
Image Source: Zacks Investment Research
FN vs. AAOI: Price Performance and Valuation
In the past six months, shares of FN and AAOI have surged 38.1% and 228%, respectively.
FN vs. AAOI: 6-Month Price Return Performance
Image Source: Zacks Investment Research
Currently, Fabrinet is trading at a forward sales multiple of 3.52X, lower than Applied Optoelectronics’ forward sales multiple of 5.80X. Fabrinet’s reasonable valuation makes it more attractive for investors looking for value and stability.
FN vs. AAOI: Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research
Conclusion: Buy FN, Hold AAOI Right Now
Both Fabrinet and Applied Optoelectronics are key players in the optical communication systems and networking space, but their near-term outlooks are quite different. AAOI faces near-term risks from rising operating expenses, which could hurt the company’s prospects in the near term.
Fabrinet is showing steady growth across its telecom and data center segments, supported by strong demand for high-speed optical products. FN’s reasonable valuation offers some downside protection as well, making it a better choice for investors looking for stability and steady upside.
Currently, Fabrinet carries a Zacks Rank #2 (Buy), making the stock a better pick over Applied Optoelectronics, which has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.