Applied Optoelectronics: A Growth Stock Down 50% to Buy Now

Applied Optoelectronics (AAOI) has seen a 178% gain over the last 52 weeks, but its stock has dropped 50% from December's multiyear highs. The company has strong growth in its data center and CATV sales, driven by the AI market and an unnamed mega-customer investing in fiber-optic network infrastructure. Its smart manufacturing strategy allows it to dodge most tariffs, but investors should be aware of the company's jumpy financial results and history of printing new shares.

Applied Optoelectronics (AAOI) has experienced a remarkable 178% gain over the past year, yet its stock has dropped 50% from its December highs. This mixed performance is a result of several key factors, including strong growth in data center and CATV sales, driven by the booming AI market and investments in fiber-optic network infrastructure [1].

In its recent Q2 2025 earnings report, Applied Optoelectronics reported a 100% year-over-year (YoY) increase in revenue to $103 million, with data center sales rising by 30% and CATV sales surging eightfold to $56 million [2]. These gains are largely attributed to the demand for high-speed networking products, driven by AI and large-scale customer investments. The company's strategic manufacturing approach, with significant operations in the U.S. and Taiwan, helps it avoid most tariff risks [1].

However, the company's financial performance has been characterized by volatility. While Applied Optoelectronics has shown impressive revenue growth, its non-GAAP loss per share fell below guidance due to higher-than-expected operating expenses. The company expects Q3 revenue to range between $115 million and $127 million, with a stable non-GAAP gross margin forecast of 29.5% to 31% [2]. Despite these positive indicators, the company's share count has increased by 125% in the last three years, primarily due to stock-based compensation, which could impact future earnings [1].

Investors should also consider the company's reliance on a few large customers for a significant portion of its revenue. This customer concentration could pose risks if any major customer reduces its orders. Additionally, the company's capital expenditures (CapEx) for the full year are expected to range between $120 million and $150 million, with a focus on high-speed data center products [2].

In summary, Applied Optoelectronics' stock performance reflects a mix of strong growth and volatility. While the company's data center and CATV sales have shown impressive growth, driven by the AI market and large customer investments, investors should be aware of the company's financial volatility and reliance on a few key customers. The company's strategic manufacturing approach and focus on high-speed networking products present potential opportunities, but also come with risks.

References:
[1] https://finance.yahoo.com/news/1-growth-stock-down-50-202300350.html
[2] https://www.ainvest.com/news/applied-optoelectronics-q2-earnings-call-highlights-mixed-sentiment-strong-revenue-growth-increased-expenses-2508/