Applied Optoelectronics’ 1.6T Timelines and $471M Forecast Clash in Q2 2026 Earnings Call

Date of Call: Aug 6, 2026

Financials Results

• Revenue: $191.9 million, up 86% YOY and up 27% sequentially
• EPS: Non-GAAP income per share of $0.06, above guidance range of loss $0.03 to earnings $0.03
• Gross Margin: 29.8%, in line with guidance range of 29%-30%, compared to 29.2% in Q1 2026 and 30.4% in Q2 2025
• Operating Margin: Non-GAAP operating loss of $10.3 million, compared to an operating loss of $10.8 million in Q2 prior year

Guidance:

• Q3 revenue expected between $255 million and $290 million, representing 130% year-over-year growth at the midpoint.
• Q3 non-GAAP gross margin expected in the range of 29%-30.5%.
• Q3 non-GAAP net income expected between $10.1 million-$24 million.
• Q3 non-GAAP EPS expected between $0.11 per share and $0.26 per share.
• 2026 revenue expected to be around $1.1 billion.

Business Commentary:

Record Revenue and Profitability:

• Applied Optoelectronics reported record revenue of $191.9 million for Q2 2026, in line with their guidance range of $180 million-$198 million.
• The company returned to non-GAAP profitability, with an income per share of $0.06.
• The growth was driven by robust demand in both the data center and CATV businesses, particularly due to the strong volume ramp of 800G products.

Data Center Growth:

• The company's data center revenue reached $107.7 million, a 140.4% year-over-year increase and 32.3% sequential increase.
• This was attributed to strong demand for 100G, 400G, and 800G products, especially the 800G products which increased more than tenfold year-over-year.

Capacity Constraints and Demand:

• Despite robust demand, AOI noted that near-term revenue growth is bounded by production capacity and key component availability.
• Forecast demand for 800G and 1.6 terabit modules is projected to exceed production capacity through mid-2027.

CATV Business Performance:

• The company's CATV revenue reached a record $80.6 million, a 43.8% year-over-year increase and 20.6% sequential increase.
• The strong performance was driven by significant shipments of 1.8 gigahertz amplifiers to their largest customer and momentum with new MSO customers.

1.6 Terabit Product Ramp:

• AOI expects shipments of its 1.6 terabit products to begin later in Q3 2026, with a significant ramp expected in 2027.
• The company expects this product to contribute significantly to its revenue, with plans to increase capacity to meet strong customer demand.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed satisfaction with 'solid second quarter results that were in line with or better than our expectations' and highlighted 'robust demand' and 'record revenue.' They noted 'continued steady sequential revenue growth' and 'return to non-GAAP profitability.' Dr. Lin stated, 'We continue to believe our 2026 revenue will be around $1.1 billion this year' and 'It is an exciting time for our industry and for AOI.'

Q&A:

• Question from George Nader (Wolfe Research): Hi, guys. Thanks very much. I wanted to ask about all the stuff that’s been in the news of late around Chinese transceivers and the potential for a U.S. ban on those transceivers being shipped into the U.S. Could you just talk about your perspective on that? What are you seeing, hearing? How might that affect AOI? Does that change anything in terms of your capacity planning? Does it change anything with your conversations with customers? Any insights would be great. Thanks.
  Response: Management sees U.S. manufacturing as a key competitive advantage; any potential ban could heighten customer interest in AOI's domestic production, but it is too early to assess specific ramifications.

• Question from George Nader (Wolfe Research): Got it. Okay. Just as a follow-up, I was just curious about the ramp in 800G. It looks like the growth in the business right now is coming from 100, 200, and 400, just based on your comments about the mix of transceivers in the quarter. It seems like at this point, the 800G has got to be the driver on the growth in data center. I’m kind of wondering exactly where you guys are. Is all that tooling fully installed and ready? Are those laser data comm chips built and sitting on the shelf? Do you need to get qualifications on any of this? Any more you can tell us on the ramp and the readiness would be great. Thanks.
  Response: 800G revenue growth is the primary driver for sequential growth; current delivery is limited by production capacity, not tooling or qualification status. Significant new capacity is being added, with output expected to reach 650,000 units per month by year-end.

• Question from Simon Leopold (Raymond James): Thanks for taking the question. I appreciate you’ve given us a lot of guidance commentary, and some quick arithmetic suggests that in the fourth quarter, you’re anticipating the combination of 800G and 1.6T revenue in the neighborhood of $330 million. I want to make sure that I’m thinking about this correctly first, and then I’ve got a follow-up.
  Response: Confirmed that Q4 800G and 1.6T revenue is directionally around $330 million.

• Question from Simon Leopold (Raymond James): Great. I recall in the spring that you were talking about the 1.6T ramp and having a commitment for $200 million through an order. I’m trying to get a better sense of how to think about the timing of that particular project in that it sounds like it may start in the fourth quarter of this year, but maybe the majority of it is a 2027 event. How should we think about that $200 million order you had talked about for 1.6T in the past?
  Response: Deliveries on the $200 million 1.6T order will start late in Q3 and ramp in Q4, with a tail into Q1 2027; it is the beginning of significant future orders from this customer.

• Question from Simon Leopold (Raymond James): Great. I want to ask a different China-related question. Apart from the potential regulatory issues. We’ve been getting a lot of questions about the suggestion that there will be new manufacturing of lasers coming out of China. Just trying to get a sense of how you’re thinking about that potential, and if that were to occur, if new Chinese manufacturing came online to make lasers, what could that possibly mean to your business? Thank you.
  Response: New Chinese laser manufacturing is unlikely to impact AOI in the next 2-3 years due to high demand, long equipment lead times, and AOI's strategic focus on securing supply for its own transceiver and CPO needs.

• Question from Ryan Koontz (Needham & Company): Great. Thanks. Maybe just following up on the question about laser supply, and thinking about your own constraints there, indium phosphide. How are you guys feeling about substrates and other raw materials that you need to ramp? Is that a current bottleneck for your products? Which products are the most challenging for you to ramp at the moment?
  Response: Substrate supply is not a current bottleneck; secured supply is in place through next year, and discussions with suppliers are ongoing to meet future needs for 2028-2029.

• Question from Ryan Koontz (Needham & Company): Great, really helpful. Then maybe following up on George’s question earlier about 1.6T. How are you feeling about your broad market traction with that product? Obviously, we’re expecting a pretty big uptick in demand with Tomahawk 6 at the end of the year. How are you feeling about your traction with other customers besides the one order you have in hand now?
  Response: There is broad-based customer interest in 1.6T, but AOI is being cautious about taking additional orders until production capacity is sufficient to service multiple customers, balancing capacity additions with demand.

• Question from Michael Genovese (Rosenblatt): Great. Thanks so much. Guys, the guide for the full year is on track and the milestones for next year seem to be on track. There has been a pushout this year into 4Q. Could you just give us a little bit more color on the challenges of ramping up capacity that were different than what you expected three months ago, and that clearly are going to keep getting better as we go forward. What are some of these specific challenges where 800G, for instance, wasn’t quite as big as you thought it would be in 2Q?
  Response: The main challenge is the supply of key components like DSP and TIA for 800G and 1.6T products; close collaboration with suppliers is ongoing, and AOI's in-house laser manufacturing is a competitive advantage.

• Question from Michael Genovese (Rosenblatt): Okay, perfect. That’s very helpful. I guess, my next question would be, given that 1.6 will be a lot more in the mix in the fourth quarter, do we still expect to exit the year in the mid-30s of gross margin?
  Response: Gross margin will improve with higher 1.6T revenue, expected to be around 32%-33% this year, with further improvement anticipated as CPO laser shipments ramp.

• Question from Michael Genovese (Rosenblatt): Okay. Final question from me to just follow up on what you said about CPO. I don’t think that all the investors know exactly that you’re in the CPO market or necessarily have high expectations for you guys in CPO. Any kind of additional update in terms of the number of customers that you’re talking to and status that you’re at with that program, I think would be helpful. That’s it for me. Thank you.
  Response: AOI is engaged with multiple major CPO customers; the primary constraint is manufacturing capacity to produce sufficient high-power lasers for both transceivers and CPO modules, with expansion plans underway to meet demand.

Contradiction Point 1

Timeline and Mix for 1.6T Revenue Contribution

Timing and scale of 1.6T revenue ramp shift significantly between quarters.

Ryan Koontz (Needham & Company) - Ryan Koontz (Needham & Company)

2026Q2: AOI is the fourth supplier qualified by a major hyperscale customer for 1.6T... AOI has over $200M in orders. Due to material supply constraints, AOI can commit to delivering over $70M in revenue in Q4. Demand is very high, with customers targeting over 500,000 transceivers per month by end of 2027. - [Dr. Stefan Murry](CSO) and [Dr. Thompson Lin](CEO)

What is the outlook for broad market traction of the 1.6T product beyond the current order, particularly with Tomahawk 6? - Tim Savageaux (Northland Capital Markets)

2026Q1: The 1.6T revenue ramp will be much bigger in 2027 (~$2B+), with this year's order being relatively small (~$200M). - [Dr. Thompson Lin](CEO)

Contradiction Point 2

Revenue Forecast for the $471M/Month Figure

The $471M forecast is described as a capacity number in Q1 but as a revenue forecast in Q2.

George Nader (Wolfe Research) - George Nader (Wolfe Research)

2026Q2: Overall transceiver revenue is projected to reach $471M per month by mid-2027, driven by 800G and 1.6T. - [Dr. Stefan Murry](CSO) and [Dr. Thompson Lin](CEO)

Is all tooling installed and ready for the 800G ramp, are laser/data chips built, do you need more qualifications, and what is the current readiness and ramp status? - Simon Leopold (Raymond James)

2026Q1: Regarding the $471M figure, it is a revenue forecast based on orders in hand and customer commitments, not a capacity number. - [Dr. Stefan Murry](CSO)

Contradiction Point 3

Expected Gross Margin Trajectory

Gross margin improvement timeline shifts from early 2027 to being tied to the 1.6T ramp.

Michael Genovese (Rosenblatt) - Michael Genovese (Rosenblatt)

2026Q2: Gross margins will improve as 1.6T revenue increases... In the short term, gross margin improvement is tied to the ramp of 1.6T transceiver revenue, which is expected to more than double in Q1 2027 compared to Q4 2026. - [Dr. Thompson Lin](CEO)

With 1.6T representing a larger mix in Q4, do we still expect to exit the year with gross margins in the mid-30s? - Ryan Koontz (Needham)

2026Q1: Regarding margins: Gross margin is expected to improve with scale and mix. It will reach around 35% by end of 2026, and exceed 40% by late 2026/early 2027 - [Dr. Thompson Lin](CEO)

Contradiction Point 4

800G Revenue Trajectory and Timing

Inconsistent statements on when 800G revenue will become the largest data center contributor.

George Nader (Wolfe Research) - George Nader (Wolfe Research)

2026Q2: 800G revenue more than doubled sequentially in Q2 and is expected to grow nearly 5x sequentially in Q3. - [Dr. Thompson Lin](CTO)

What is the current status of the 800G ramp, including tooling installation, laser/data chip production, and qualification requirements? - Timothy Savageaux (Northland Capital Markets)

20260227-2025 Q4: 800G will be the largest segment within data center revenue. - [Stefan Murry](CEO)

Contradiction Point 5

1.6T Product Ramp Timing

Contradiction in the expected timeline for 1.6T product revenue contribution.

George Nader (Wolfe Research) - George Nader (Wolfe Research)

2026Q2: Q3 revenue growth of 35%-45% is mainly driven by 800G. 100G revenue is expected to decrease by $20M-$25M in Q3... Overall transceiver revenue is projected to reach $471M per month by mid-2027, driven by 800G and 1.6T. Customer demand exceeds current capacity by 20%-40%. - [Dr. Stefan Murry](CTO) and [Dr. Thompson Lin](CTO)

What is the current readiness and ramp status of the 800G, including tooling, laser/data chips, and qualification requirements? - Simon Leopold (Raymond James)

20251107-2025 Q3: 1.6T revenue is anticipated later in 2026 (around June/July), not in Q4 or H1. - [Stefan Murry](CTO) and [Chih-Hsiang Lin](CTO)