Applied Optoelectronics AAOI reported second-quarter 2026 non-GAAP earnings of 6 cents per share against a loss of 16 cents a year ago. The metric beat the Zacks Consensus Estimate by 100%.
Revenues surged 86.4% year over year to $191.92 million and topped the consensus mark by 0.41%. The topline benefited from robust datacenter and CATV demand. Datacenter revenues more than doubled year over year, while 800G product revenues increased more than tenfold.
AAOI Datacenter Sales Accelerate on 800G Ramp
Datacenter revenues reached $107.66 million, up 140.4% year over year and 32.3% sequentially. The business accounted for 56% of total revenues, supported by stronger shipments of high-speed optical transceivers used in AI-focused infrastructure.
800G revenues were $12.8 million, representing 11.9% of datacenter revenues, and more than doubled sequentially. Meanwhile, 400G revenues totaled $48.4 million, rising more than fourfold year over year and 27.4% sequentially. Management expects 800G revenues to increase nearly fivefold sequentially in the third quarter.
Applied Optoelectronics CATV Sales Set a Record
CATV revenues were a record $80.58 million, rising 43.8% year over year and 20.6% sequentially. The result was slightly above management's prior expectations of $75 million to $80 million.
The company continued shipping significant volumes of 1.8 GHz amplifiers to its largest CATV customer. It also cited momentum with newer multiple-system operator customers and expects third-quarter CATV revenues between $100 million and $110 million.
AAOI Margins Improve Sequentially as Costs Rise
In the second quarter of 2026, on a non-GAAP basis, gross margin was 29.8%, down 60 basis points (bps) year over year but up 60 bps sequentially. Management continues to target gradual margin improvement, although near-term datacenter product mix remains a headwind.
Adjusted EBITDA was negative at $0.54 million compared with a loss of $3.4 million in the year-ago quarter and positive adjusted EBITDA of $1 million in the preceding quarter.
Non-GAAP operating expenses increased year over year as the company continued to invest in product development and capacity expansion. Research and development expense rose 68.8% year over year to $34 million, while sales and marketing expense increased 40.2% to $10.6 million. General and administrative expense climbed 59.8% year over year to $22.9 million, bringing total non-GAAP operating expenses to $67.6 million, up 60.6% year over year.
Non-GAAP operating loss narrowed to $10.3 million from $10.8 million reported in the year-ago quarter.
Applied Optoelectronics Expands Transceiver Capacity
Total manufacturing capacity approached 200,000 units per month at quarter-end, up from nearly 100,000 units at the end of the first quarter. AAOI expects capacity for 800G and 1.6T products to exceed 650,000 units per month by year-end.
Management said that forecast demand for 800G and 1.6T modules should exceed production capacity through mid-2027. The company expects initial production at its new 210,000-square-foot Sugar Land facility late in the third quarter and plans further capacity additions in Pearland and Houston.
AAOI 1.6T Ramp Adds Another Growth Vector
AAOI expects full qualification of its first 1.6T product with a major hyperscale customer within weeks of the earnings call, with shipments beginning later in the third quarter. Management said that it has more than $200 million of 1.6T orders in hand.
The company expects at least $70 million of 1.6T revenues in the fourth quarter, although material availability remains a constraint. Separately, third-quarter 100G revenues are expected to decline because a customer cannot source enough 100G switches, creating a temporary offset to faster 800G growth.
Applied Optoelectronics Balance Sheet Backs Expansion
As of June 30, 2026, cash, cash equivalents, and restricted cash totaled $508.76 million, up from $449.38 million at the end of March.
The company made $565.5 million of capital investments during the quarter, including $280 million of equipment prepayments. These expenditures primarily support expansion of 400G, 800G and 1.6T transceiver manufacturing capacity.
Applied Optoelectronics Offers Strong Q3 Outlook
For the third quarter of 2026, Applied Optoelectronics expects revenues between $255 million and $290 million. Non-GAAP gross margin is projected to be in the range of 29% to 30.5%.
Non-GAAP net income is expected to be between $10.1 million and $24 million, translating into earnings of 11 cents to 26 cents per share based on approximately 92.8 million diluted shares. Management also continues to expect 2026 revenues of around $1.1 billion, with production capacity and component availability limiting near-term growth rather than demand.
AAOI’s Zacks Rank & Stocks to Consider
Applied Optoelectronics currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Computer and Technology sector include Applied Materials AMAT, Inuvo INUV and Analog Devices ADI. Each stock carries a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Applied Materials shares have gained 105.3% in the year-to-date period. Applied Materials is set to report second-quarter 2026 results on Aug. 13.
Shares of Inuvo have plunged 58.9% in the year-to-date period. Inuvo is set to report the second-quarter 2026 results on Aug. 11.
Shares of Analog Devices have rallied 39.1% year to date. Analog Devices is slated to report fiscal third-quarter 2026 results on Aug. 19.
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