Back to top

Image: Bigstock

AAOI Stock Gains 17% in a Month: Should You Buy, Sell or Hold?

Read MoreHide Full Article

Key Takeaways

  • AAOI shares rose 16.6% in a month, fueled by strong data center and CATV performance.
  • Applied Optoelectronics' Q2 data center revenue surged 140.4%, with 800G sales up more than tenfold.
  • AAOI faces supply constraints, a $20-$25M Q3 shortfall from 100G issues, and a premium valuation.

Applied Optoelectronics (AAOI - Free Report) stock has rallied 16.6% in a month, outperforming the Zacks Computer & Technology sector’s and the Zacks Electronics - Semiconductors industry’s 6% and 5.5% growth, respectively. 

The company’s shares have also outperformed its peers, which include Lumentum (LITE - Free Report) and Coherent (COHR - Free Report) . Both Lumentum and Coherent shares have risen 15.8% and 12%, respectively, over the past month.

The outperformance can be attributed to robust performance in both the data center and CATV (cable television) businesses. The surge in AI infrastructure deployments requiring high-speed optical transceivers remains noteworthy. This demand is particularly strong for next-generation products such as 400G, 800G and 1.6T transceivers, which are essential for hyperscale data centers supporting AI workloads.

AAOI Stock Performance

Zacks Investment Research
Image Source: Zacks Investment Research

AAOI Benefits From AI-Led Optical Networking Demand

Applied Optoelectronics is benefiting from accelerating optical networking demand, driven by artificial intelligence (AI) infrastructure investments and hyperscale data center upgrades. 

The company’s data center revenues surged 140.4% year over year to $107.7 million in second-quarter 2026. Revenues from 400G products increased more than fourfold, while 800G revenues climbed more than tenfold. Forecast demand for 800G and 1.6T products is expected to exceed production capacity through mid-2027.

The upcoming 1.6T ramp should further strengthen AAOI’s AI exposure. The company expects initial shipments to begin in the third quarter, followed by a larger ramp through 2027. AAOI already has more than $200 million of 1.6T orders in hand, while customer demand continues to exceed available capacity.

AAOI’s Earnings Estimates Show Upward Trend

AAOI’s robust demand for its next-generation data center products, particularly driven by the rapid expansion of AI infrastructure and the company’s continued product innovation, is expected to benefit the company’s top-line growth.

For the third quarter of 2026, Applied Optoelectronics expects revenues between $255 million and $290 million. The Zacks Consensus Estimate for the third quarter is currently pegged at $269.15 million, indicating 126.88% year-over-year growth.

Applied Optoelectronics expects non-GAAP earnings in the range of 11 cents to 26 cents per share. The consensus mark for earnings is currently pegged at 14 cents per share, which has been unchanged over the past 30 days. This suggests an increase of 255.56% year over year.

AAOI Suffers From Supply Constraints and Rising Competition

Despite its expanding portfolio, AAOI is suffering from production capacity and key component supply constraints, which have limited its ability to meet surging customer demand for next-generation AI infrastructure products.

The company also faced temporary setbacks in its 100G product line in the second quarter of 2026 due to a memory shortage affecting customers’ ability to source switches. This is likely to result in a $20-25 million revenue shortfall in the third quarter of 2026. Operating expenses were also higher than expected, due to increased shipping costs and elevated R&D spending to qualify new products.

AAOI is also suffering from stiff competition from companies like Fabrinet (FN - Free Report) , Lumentum, and Coherent, which are also expanding their footprint in the optical networking market.

Fabrinet is benefiting from strong AI-driven data-center demand as hyperscalers accelerate investments in high-speed optical connectivity, data-center interconnect (DCI) and high-performance computing (HPC). In fourth-quarter fiscal 2026, data-center revenues jumped 68% year over year and 13% sequentially to $669 million, which accounted for 51% of total revenues. DCI was the largest contributor to growth, with its annualized revenue run rate exceeding $1 billion, while HPC also delivered solid growth. Fabrinet shares have also gained 17.5%, outperforming AAOI.

AAOI Trades at a Premium

Applied Optoelectronics shares are currently overvalued, as suggested by its Value Score of F.

AAOI stock is trading at a premium with a trailing 12-month Price/Sales of 5.41X compared with the Electronics - Semiconductors industry’s 5.26X.

AAOI Valuation

Zacks Investment Research
Image Source: Zacks Investment Research

What Should Investors Do With AAOI Stock?

Applied Optoelectronics is benefiting from robust and accelerating demand for its next-generation data center products (especially 800G and 1.6T transceivers), driven by AI infrastructure investments and its ability to rapidly expand manufacturing capacity and leverage in-house laser production.

However, intensifying competition from larger rivals like Lumentum, Fabrinet and Coherent, production capacity constraints, and supply chain challenges remain headwinds that could hurt the company’s financial performance. Stretched valuation also remains a concern.

Applied Optoelectronics currently carries a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Published in