Key Takeaways
- Applied Optoelectronics fell 27% in a week, mostly before it reported, as AI optics stocks, Lumentum among them, sold off.
- Third-quarter revenue more than doubled to a record, but a 1.6T parts shortage left fourth-quarter guidance short of estimates.
- Power delays in Texas cut its 2026 capacity goal to 500,000 units a month from 650,000, and three firms cut their targets.
- Raymond James’ $165 target works out to about 6.7x forward sales, so I’d wait for proof the ramp is on schedule.
Applied Optoelectronics (AAOI) stock fell 27% in the past week, and most of the damage came before the company reported. Its worst day was Thursday’s 21% drop, ahead of its 4:10 p.m. release, before a 7% bounce on Friday.
Lumentum (LITE) had it worse, even though its demand looks fine. On Monday it guided this quarter’s revenue to $1.6 billion at the midpoint, up from $1.26 billion, and agreed to an all-stock sale to Marvell (MRVL) at 4.5 Marvell shares each. As Marvell fell, so did the offer: Lumentum closed Thursday at $509.70, against the $1,132 a share the deal was worth when announced. Democrats’ midterm sweep added to the selling, as investors dumped AI-infrastructure stocks on fears of tighter data-center rules.
A Record Quarter, Short on Parts
Third-quarter revenue rose 127.5% from a year earlier to a record $269.9 million. AOI swung to a $6.3 million GAAP profit from a $17.9 million loss, and adjusted EPS of $0.17 beat the $0.14 expected.
Demand isn’t the problem. In October, a Tier 1 hyperscale customer agreed to buy at least 10% of its 1.6T transceivers from AOI through May 2029, a deal management expects to bring in $1 billion to $1.5 billion.
Supply is. Fourth-quarter revenue guidance of $385 million to $420 million falls short of the $427 million consensus even at the top, because that customer moved to 1.6T faster than expected and AOI ran short of parts. CEO Thompson Lin said AOI can ship only “$50 million to $70 million” of roughly $450 million in 1.6T orders this quarter.
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Power Is the Next Bottleneck
Next year’s constraint is electricity. CFO Stefan Murry said the US expansion plan would “take longer to complete due to longer than expected time to obtain necessary electrical power,” pushing the second phase of its Texas plant back about seven months.
That cut AOI’s end-2026 capacity goal to over 500,000 units a month, from 650,000, though it raised its end-2027 goal to over 1 million from 930,000. Going into the report, analysts expected revenue to reach $2.66 billion in 2027:
I’d expect this year’s figure to come down after the short guide. The power delay makes 2027’s the number to watch.
Does $165 Add Up?
Raymond James cut its target to $165 from $178 on Friday and kept its Outperform rating, citing construction delays. Rosenblatt cut to $115 from $220, and B. Riley to $45 from $92, below the share price.
The stock traded at 1.9x forward sales at Thursday’s close, below its five-year average of 2.3x, and about 2x after Friday’s bounce:
At $165, the stock would trade at about 6.7x forward sales, nearly three times its average, if estimates hold. Hitting those estimates depends on the new capacity being built and powered on time.
What Applied Optoelectronics Has to Prove
At about 2x sales, with a signed hyperscaler deal and more 1.6T orders than it can ship, AOI looks cheap if it delivers. But this quarter’s shortfall came from parts and next year’s risk comes from power, and neither is fixed yet. I’d want to see the next report show capacity near 500,000 units a month before betting on that 229%.
So What Is Applied Optoelectronics Stock Actually Worth?
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