AAOI Surges 10.9% on Relative Strength Rally and Earnings Optimism – Is This the Catalyst for a New Bull Run?

Summary
• AAOI rockets 10.9% intraday, surging from $29.33 to $34.19 amid a Relative Strength (RS) rating upgrade and Q3 earnings optimism.
• Q3 2025 EPS of -$0.09 beats estimates by $0.01, while revenue jumps 82.1% YoY to $118.63M, though trailing EPS remains negative at -$3.22.
• Sector peers like LITE (Lumentum) rally 1.69%, signaling broader tech optimism as AI and 5G infrastructure gains momentum.

Applied Optoelectronics (AAOI) has ignited a 10.9% intraday rally, fueled by a Relative Strength (RS) rating upgrade and Q3 earnings optimism. The stock’s surge from $29.33 to $34.19 reflects a mix of short-term technical momentum and sector-wide enthusiasm for AI and 5G infrastructure. With trailing EPS at -$3.22 and a dynamic PE of -47.65, investors are betting on a turnaround as the company navigates a volatile earnings landscape.

Relative Strength Surge and Earnings Optimism Drive AAOI's 10.9% Rally
AAOI’s explosive 10.9% intraday gain is anchored by a recent Relative Strength (RS) rating upgrade from 89 to 92, a key technical benchmark for market leadership. This adjustment, coupled with Q3 2025 earnings that beat estimates by $0.01 despite a revenue shortfall, has reignited speculative interest. The stock’s sharp rebound from a 200-day low of $22.58 and its proximity to the 52-week high of $41.27 suggest a short-term bullish bias. Meanwhile, sector-wide momentum in AI and 5G infrastructure—evidenced by Meta’s 2Africa subsea cable completion and Ericsson’s open network collaborations—has amplified risk-on sentiment, drawing capital into high-growth tech plays like AAOI.

Communication Equipment Sector Gains Steam as AAOI Leads Rally
The Communication Equipment sector has seen mixed results, with LITE (Lumentum) rising 1.69% on AI infrastructure optimism. AAOI’s 10.9% surge outpaces sector peers, driven by its Relative Strength upgrade and speculative positioning ahead of Q4 2025 earnings guidance. While LITE benefits from laser and optical component demand, AAOI’s rally reflects a more aggressive bet on near-term earnings recovery and AI-driven infrastructure spending. The sector’s broader momentum, fueled by 5G expansion and subsea cable projects, provides a tailwind for AAOI’s short-term trajectory.

Options Playbook: AAOI20251219C33 and AAOI20251219C31.5 Lead the Charge
• RSI: 82.61 (overbought)
• MACD: 0.027 (bullish divergence)
• 200-day average: $22.58 (well above)
• Bollinger Bands: Price at $33.69, 73% above lower band

AAOI’s technicals scream short-term bullish momentum, with RSI at overbought levels and MACD divergence hinting at a continuation. The 200-day average at $22.58 and Bollinger Bands suggest a strong breakout from a multi-month range. For options traders, the AAOI20251219C33 and AAOI20251219C31.5 contracts stand out:

• AAOI20251219C33:
- IV: 121.46% (high volatility)
- Leverage: 12.06% (moderate)
- Delta: 0.552 (moderate sensitivity)
- Theta: -0.1969 (aggressive time decay)
- Gamma: 0.0593 (moderate sensitivity to price swings)
- Turnover: 33,300 (liquid)
- Payoff at 5% upside ($35.37): $2.37/share
- Why it works: High IV and moderate delta position this call to capitalize on a continuation of the rally, with liquid turnover ensuring easy entry/exit.

• AAOI20251219C31.5:
- IV: 78.00% (reasonable)
- Leverage: 12.52% (moderate)
- Delta: 0.6817 (high sensitivity)
- Theta: -0.1598 (moderate decay)
- Gamma: 0.0833 (high sensitivity to price swings)
- Turnover: 35,010 (liquid)
- Payoff at 5% upside ($35.37): $3.87/share
- Why it works: High delta and gamma make this contract ideal for a sharp move, while reasonable IV and turnover ensure manageability. Aggressive bulls should prioritize this for a breakout play.

Hook: If $33.69 holds, AAOI20251219C31.5 offers a high-gamma, high-delta play on a potential $35.37 target.

Backtest Applied Optoelectronics Stock Performance
The backtest of AAU's performance after a 11% intraday increase from 2022 to now shows favorable results. The 3-Day win rate is 50.65%, the 10-Day win rate is 52.80%, and the 30-Day win rate is 51.29%, indicating a higher probability of positive returns in the short term. The maximum return during the backtest was 28.34% over 30 days, suggesting that there is potential for significant gains following the intraday surge.

Bullish Momentum Unleashed – AAOI Eyes $34.19 Intraday High as Sector Leaders Signal Growth
AAOI’s 10.9% surge reflects a confluence of Relative Strength optimism, Q3 earnings resilience, and sector-wide AI/5G tailwinds. With RSI at overbought levels and a 52-week high of $41.27 in sight, the stock is primed for a continuation of its rally—provided it holds above $33.69. Sector leaders like LITE (up 1.69%) reinforce the narrative of tech-driven growth. Investors should monitor the $34.19 intraday high as a critical retest level and watch for a breakdown below $29.33 to signal a reversal. For now, the momentum is unrelenting—position for a breakout above $34.19 or a short-term pullback to $31.50 for a reentry.