Shares of Applied Optoelectronics (AAOI) surged approximately 21% on Wednesday, reaching $227.05 as robust demand from artificial intelligence data centers continued to outpace supply. The stock touched an intraday high of $233.55, pushing the company's market capitalization to roughly $17.3 billion.
The rally reflects growing investor confidence in AOI's ability to capitalize on the AI infrastructure boom. The company reported first-quarter data-center revenue of $81.4 million, a 154% increase from $32.0 million in the same period last year, now accounting for 53.9% of total revenue. Total revenue climbed 51.4% year-over-year to $151.1 million, while CATV equipment contributed $66.8 million.
During a presentation at the Needham technology conference, CFO and Chief Strategy Officer Stefan Murry emphasized that demand is not the limiting factor. "We have plenty of demand, more demand than we can supply," he stated, warning that this imbalance is expected to persist "at least until middle of 2027, maybe beyond." The company also shipped its first volume 800G products to a major hyperscale customer in the first quarter.
AOI manufactures optical transceivers, which convert data into light signals for transmission through fiber-optic cables. The 800G lineup, capable of 800 gigabits per second, is critical for cloud operators like Amazon, Microsoft, and Oracle as they expand AI data-center capacity. Founder and CEO Thompson Lin noted sustained customer interest in both 800G and next-generation 1.6T products, driven by increased AI spending.
Beyond AI, AOI announced a collaboration with Mediacom to deploy DOCSIS 4.0 upgrades, aiming to deliver faster upload and download speeds over existing coaxial and fiber networks. Mediacom CTO JR Walden highlighted that AOI's smart amplifiers would enhance capacity and signal quality, while AOI's Todd McCrum described the potential for "fiber-like performance over existing coax."
The broader optics sector also benefited, with Lumentum gaining roughly 4.4% and Coherent surging 8.7% on Wednesday, indicating widespread investor enthusiasm for companies supplying optical connectivity for AI servers.
Analysts have adjusted their price targets accordingly. Rosenblatt's Mike Genovese raised his target on AOI to $220 from $140, maintaining a Buy rating. However, caution remains due to valuation concerns and the company's financial performance. AOI reported a GAAP net loss of $14.3 million for the first quarter, widening from a loss a year earlier, while gross margin slipped to 29.1% from 30.6%.
Customer concentration poses additional risk, with 98% of revenue coming from its top 10 clients and Digicomm alone representing 74.5% of accounts receivable as of March 31. Capital expenditures are also rising sharply, with $68.1 million spent in the first quarter on facility expansion and equipment for 400G, 800G, and 1.6T transceivers. Management flagged that 2026 capex will be "materially higher" than 2025 levels.
The stock's near-term trajectory hinges on AOI's ability to execute—ramping production capacity, accelerating 800G shipments, and paving the way for 1.6T growth. Skeptics question whether a loss-making company can scale quickly without margin erosion or delays in AI spending, but for now, the market remains focused on the demand story.
