Key Takeaways
- Applied Optoelectronics shares fell 17% in a week after Amazon’s free cash flow turned negative.
- Northland upgraded Applied Optoelectronics and Coherent to Outperform the morning Marvell agreed to buy Lumentum.
- Analysts expect its revenue to more than double this year, and the Nov. 5 report will test that.
- The selloff looks overdone if data center orders hold up.
Applied Optoelectronics (AAOI) lost 17% in the week through Nov. 3, with no company news behind it. Most of it came Friday, Oct. 30, after Amazon (AMZN) reported its free cash flow had swung to an outflow on AI spending.
Then, before the open on Monday, Nov. 2, Marvell (MRVL) agreed to buy Lumentum (LITE), and Northland upgraded Applied Opto and Coherent (COHR) to Outperform. It kept Applied Opto’s $120 target, 88% above the Nov. 3 close of $63.97. The stock still fell 9.5% on Nov. 2.
AI spending fears did the damage
Amazon’s results showed a $42.4 billion free cash flow outflow over the trailing 12 months. Optics stocks sold off, and Coherent fell 12% over the week.
That spending cuts the other way, too. Much of it flows to data center suppliers, and Amazon is one of Applied Opto’s customers. In March 2025, Applied Opto issued Amazon a warrant for up to about 7.9 million shares that vests as Amazon’s purchases grow.
A $115 billion bet on optics
Marvell would give Lumentum holders 4.5 Marvell shares each, for an implied enterprise value of $115 billion. The deal still needs shareholder and regulatory approval, and the companies expect it to close in the first half of 2028. Because it is all stock, Lumentum rides on Marvell’s price: Marvell fell 29% over the week, and Lumentum 21%.
That’s still good news for Applied Opto. A chipmaker agreed to pay what the companies called a 23.9% premium, based on Oct. 28 prices, for an optics maker, even though Marvell’s slide has since cut the offer’s value to about $774 a share. Northland cited the deal for both upgrades, and kept Coherent’s $280 target.
Thursday’s report is the real test
Applied Opto reports its third quarter on Thursday, Nov. 5. Analysts expect revenue to more than double to $1.04 billion this year, from $456 million in 2025, and then reach $2.66 billion in 2027:
Only four analysts estimate 2027, so the orders outlook matters more than the quarter itself.
TIKR tracks 6 analysts on Applied Optoelectronics. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Applied Optoelectronics, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Applied Optoelectronics’ Analyst Ratings
$120 looks reachable if orders hold
Applied Opto traded at 3.1x forward sales at the Nov. 2 close. That’s above its 5-year average of 2.3x but far below the 15.3x it hit on May 1:
$120 is about 6x forward sales, well under that peak. Northland’s target is also below the consensus, which has climbed from $29.60 a year ago to $156:
Applied Opto is still losing money, and a combined Marvell and Lumentum would be a bigger rival. Still, after a 71% fall from its May 13 closing high, the selloff looks like it went too far. If Thursday’s outlook confirms the orders, $120 looks conservative. If not, expect those 2027 estimates to fall fast.
So what is Applied Optoelectronics stock actually worth?
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