Is AAOI a good stock to buy? We came across a bullish thesis on Applied Optoelectronics, Inc. on PrimeTrading’s Substack by Alex. In this article, we will summarize the bulls’ thesis on AAOI. Applied Optoelectronics, Inc.’s share was trading at $101.92 as of March 19th. AAOI’s forward P/E was 84.03 according to Yahoo Finance.
Photo from AAOI
Applied Optoelectronics, Inc. (AAOI) has transitioned from a cyclical supplier of CATV and FTTH optical components into a vertically integrated cornerstone of high-speed AI data center infrastructure. The fourth-quarter 2025 earnings highlighted record revenue of $134.3 million, a 34% year-over-year increase, and a non-GAAP net loss of only $0.6 million, signaling operational leverage from prior capital investments.
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The company’s growth is anchored by its proprietary Molecular Beam Epitaxy (MBE) process, which produces lasers and optical components with superior efficiency, reliability, and thermal tolerance, giving AAOI a unique technological moat difficult for competitors to replicate.
Vertically integrated manufacturing in the U.S., Taiwan, and China allows rapid product development and supply chain simplification, while a strategic focus on U.S.-based facilities for 800G and 1.6T transceivers addresses geopolitical and supply chain risks. The data center segment now accounts for 56% of revenue, led by hyperscale customers such as Microsoft and Amazon, with 400G and 800G products driving margin expansion.
The 800G ramp, delayed in Q4 due to firmware optimizations, is expected to begin in Q2 2026, unlocking significant revenue potential exceeding $25 million for the quarter alone, while production capacity is scaling aggressively toward 500,000 units per month by year-end. The CATV business, with DOCSIS 4.0 upgrades and proprietary amplifiers, remains a high-margin secondary engine.
Financially, a $250 million ATM equity program will support CapEx for expansion, debt repayment, and working capital, while net losses and high capital intensity remain key risks. AAOI’s unique positioning in the AI-driven optical interconnect market, coupled with its technological moat and domestic manufacturing scale, presents a compelling multi-year growth story, with analysts projecting revenue above $1 billion in 2026 and a transformative shift toward high-margin, large-scale production, despite customer concentration and execution risks.
Previously, we covered a bullish thesis on Fabrinet (FN) by Industrial Tech Stock Analyst in April 2025, highlighting the Amazon warrant deal and FN’s strengthened hyperscaler supply chain position. FN’s stock price has appreciated by approximately 171.73% since our coverage. Alex shares a similar view but emphasizes Applied Optoelectronics, Inc. (AAOI), focusing on its MBE technology, vertical integration, and the upcoming 800G ramp.
Applied Optoelectronics, Inc. is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 36 hedge fund portfolios held AAOI at the end of the fourth quarter which was 27 in the previous quarter. While we acknowledge the risk and potential of AAOI as an investment, our conviction lies in the belief that some AI stocks hold greater 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 and that has 10,000% upside potential, check out our report about this cheapest AI stock.
Disclosure: None.
