AAOI Dips 46% in Three Months: Should You Buy the Stock Now or Wait?

Applied Optoelectronics AAOI stock has plunged 46.3% over the past three months, underperforming the Zacks Computer & Technology sector’s 0.6% gain and the Zacks Electronics - Semiconductors industry’s 14.5% decline. 

The company’s shares have also underperformed its peers, which include Lumentum LITE, Ciena CIEN and Coherent COHR. All three companies are expanding their footprints in the optical networking market. Lumentum, Ciena, and Coherent shares have lost 1.6%, 31.2%, and 29.9%, respectively.

The underperformance can be attributed to production-capacity constraints, tight supply of Digital Signal Processor and Transimpedance Amplifier components and near-term weakness in 100G demand due to memory-related switch shortages, which are limiting revenue upside despite robust AI-driven demand.

AAOI Stock Performance

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However, the company is benefiting from robust performance in both the data center and CATV (cable television) businesses. The surge in AI infrastructure deployments requiring high-speed optical transceivers remains noteworthy. This demand is particularly strong for next-generation products such as 400G, 800G, and 1.6T transceivers, which are essential for hyperscale data centers supporting AI workloads.

AAOI Benefits From Strong 800G Demand

Applied Optoelectronics is benefiting from accelerating demand for 800G optical transceivers, strengthening its position in the AI-driven optical connectivity market. In the second quarter of 2026, AAOI’s 800G revenues reached $12.8 million, which accounted for 11.9% of data center revenues. The figure increased more than 10-fold year over year and more than doubled sequentially, highlighting the rapid adoption of its next-generation optical products.

Momentum is expected to accelerate further. AAOI expects 800G revenues to grow nearly fivefold sequentially in the third quarter of 2026, with management indicating that 800G will be the main contributor to sequential growth. Demand is currently running ahead of AAOI’s ability to supply products, suggesting that production capacity rather than customer demand is the primary near-term constraint. Forecast demand for 800G and 1.6T modules is expected to exceed production capacity through mid-2027.

AAOI is aggressively expanding manufacturing to capitalize on this opportunity. Manufacturing capacity for 800G and 1.6T products is expected to ramp up from 200,000 units per month to over 650,000 by year-end and to 930,000 by the end of 2027, with most near-term incremental output expected to support 800G demand. Management also expects 800G revenues to reach roughly $217 million per month by mid-2027.

AAOI’s Earnings Estimates Show Upward Trend

AAOI’s robust demand for its next-generation data center products, particularly driven by the rapid expansion of AI infrastructure and the company’s ongoing investments in manufacturing capacity, is expected to benefit the company’s top-line growth.

For the third quarter of 2026, Applied Optoelectronics expects revenues between $255 million and $290 million. The Zacks Consensus Estimate for the third quarter is currently pegged at $269.15 million, indicating 126.88% year-over-year growth.

Applied Optoelectronics expects non-GAAP earnings ranging from 11 cents to 26 cents per share. The consensus mark for earnings is currently pegged at 14 cents per share, which has declined 48.14% over the past 30 days. This suggests an increase of 255.56% year over year.

Applied Optoelectronics, Inc. Price and Consensus

Applied Optoelectronics, Inc. price-consensus-chart | Applied Optoelectronics, Inc. Quote

AAOI Suffers From Supply Constraints and Rising Costs

Despite its expanding portfolio, AAOI is suffering from production capacity and key component supply constraints, which have limited its ability to meet surging customer demand for next-generation AI infrastructure products.

AAOI also faced temporary setbacks in its 100G product line in the second quarter of 2026 due to a memory shortage affecting customers’ ability to source switches. This is likely to result in a $20-25 million revenue shortfall in the third quarter of 2026. Operating expenses were also higher than expected, due to increased shipping costs and elevated R&D spending to qualify new products.

AAOI Trades at a Premium

Applied Optoelectronics shares are currently overvalued, as suggested by its Value Score of F.

AAOI stock is trading at a premium with a trailing 12-month Price/Sales of 14.44X compared with the Computer & Technology sector’s 8.37X.

AAOI's Valuation

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What Should Investors Do With AAOI Stock?

Applied Optoelectronics is benefiting from robust and accelerating demand for its next-generation data center products (especially 800G and 1.6T transceivers), driven by AI infrastructure investments and its ability to rapidly expand manufacturing capacity and leverage in-house laser production.

However, intensifying competition from larger rivals like Lumentum, Ciena, and Coherent, production capacity constraints, and supply chain challenges remain headwinds that could hurt the company’s financial performance. Stretched valuation also remains a concern.

Applied Optoelectronics currently carries a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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