We recently shared a list of 10 Best Short Squeeze Stocks To Buy According to Analysts. In this article, we will see how Applied Optoelectronics, Inc. (NASDAQ:AAOI) compares to the other top short squeeze stocks that have received a Buy rating from analysts.

Stock market trading has an ever-changing environment. Short squeeze is among the few phenomena capable of capturing and holding the attention of such markets. The phenomenon involves a heavily shorted stock suddenly experiencing a rapid price increase, urging short sellers to buy shares to cover their positions, thereby accelerating the upward momentum. Astute investors make significant gains out of the scenario upon identifying these opportunities in their early stages. After Donald Trump’s ascension to the U.S. Presidency, recent market activities have demonstrated the significance of short squeezes.

READ ALSO: 10 Best Short-Term Stocks To Buy Right Now

Tariff rates were the first aspect to take a hit and directly impact the stock market after President Trump’s arrival in the White House. The U.S. announced a 25% tariff on imports from Mexico and Canada, effective March 4, 2025. The announcement came alongside increased tariffs on Chinese goods from 10% to 20%. These new tariff rates sent ripples through the financial markets, affecting the stocks in the U.S. and beyond, as countries like Canada started countering the move by threatening to increase tariffs on U.S. products as well.

By March 6, 2025, the U.S. President signed orders and brought many goods to the list of exemptions from his new tariffs on Canada and Mexico. For instance, CNN reported a temporary halt on the new 25% tariff rates on imports for carmakers from Canada and Mexico. However, the decision did not alleviate the substantial adverse effect the U.S. stock market felt. CNBC noted that individual investors pulled $1.2 billion from the U.S. equity market, the highest ever in the decade.

However, tariffs do not only affect the volatility of the U.S. market. Various incidents contribute to the shifts in the broader market, setting the stage for potential short squeezes. For instance, the advent of new AI models from China initially caused a wave in the technological industry, leading many of the giant tech companies to witness a never-before-seen decline in their return. These foreign AI models were comparatively more flexible yet cheaper than their U.S. counterparts, thus resulting in many investors pulling their investment from tech companies.

The hedge funds have been reducing their holdings in Chinese equities for the fourth consecutive week; however, the enthusiasm for Chinese tech stocks, initially sparked by the new AI startups, began to wane. The trend reflects a cautious approach, possibly opening avenues for short-squeeze opportunities in other sectors.

Furthermore, Asia-focused hedge funds have performed better than their U.S. counterparts during recent market sell-offs. Owing to the recent market volatility in the U.S., global investors sought refuge in the Chinese stocks, eventually contributing to this outperformance. These events increase the potential for short-squeeze scenarios in different markets, including the U.S.

These developments have led to an upward trend in the attention of analysts on stocks with high short interest and substantial upside potential. Hence, investors will find it beneficial to their investment portfolio to delve into the top 10 short-squeeze stocks to consider, as recommended by leading analysts.​

Our Methodology

We compiled our list using a few key financial metrics. Primarily, we took stocks with Short Float of over 15%. This is a critical factor for potential short squeezes, representing significant short interest. We also filtered our list based on Relative volume. Our list comprises stocks with a Relative Volume of over 1.5, indicating higher-than-usual trading activity.

Additionally, we included only those with Positive EPS to signify profitability. We refined our selection further by considering only the stocks with a Buy or better recommendation from analysts, as this ensured they had favorable market sentiment. Lastly, we included only stocks with an average trading volume of at least 100K, providing sufficient liquidity. The final list was ranked based on the analysts’ upside potential, which was used to deliver the highest expected price appreciation in our article. We also found it helpful to mention the number of hedge funds from Insider Monkey’s Q4 2024 database, following each stock in our list, to allow the investors to understand their level of institutional interest.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Applied Optoelectronics, Inc. (NASDAQ:AAOI)

Short % of Float: 20.34%

Number of Hedge Fund Holders: 23

Analysts Upside Potential: 71.87%

Texas-based manufacturing company, Applied Optoelectronics, Inc. (NASDAQ:AAOI) is manufacturing and supplying fiber-optic networking products. The company’s product portfolio includes diode lasers, photodiodes, subassemblies, and related modules and equipment. It strives to stay at the forefront of technological advancements in optoelectronics by focusing on R&D. Regions served by the company include the United States, Taiwan, and China.

Applied Optoelectronics, Inc. (NASDAQ:AAOI) enters our list of best short-squeeze stocks with a high short percentage of float of 20.34% as of February 28, 2025. The company reached value after releasing its fourth-quarter earnings call, announcing an increase in CATV segment revenue, up more than 4x year-over-year. The stock price has recently rallied, potentially due to the warrant agreement with Amazon. This is expected to result in a further increase in demand as short sellers scramble to cover their positions.

Institutional interest in the stock remains high, with 23 hedge fund portfolios from Insider Monkey’s Q4 2024 database holding stakes in Applied Optoelectronics, Inc. (NASDAQ:AAOI). Analysts have given a consensus Buy rating, with a 1-year median price target of $38. The upside potential is 71.87%, which makes it the best buy for investors interested in a short squeeze.

Overall, AAOI ranks 7th on our list of 10 best short squeeze stocks to buy, according to analysts. While we acknowledge the potential for AAOI as an investment, our conviction lies in the belief that some AI stocks hold more significant promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AAOI but that trades at less than 5 times its earnings check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks To Invest In According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.