Why is Applied Optoelectronics soaring despite a modest earnings report? Uncover the AI-fueled strategy boosting its stock to multiyear highs.
Shares of Applied Optoelectronics (AAOI 48.10%) skyrocketed on Friday. A mixed earnings report sent the stock soaring, reaching a 51.4% gain as of 2:15 p.m. ET. The maker of fiber-optic networking equipment and components hasn’t seen stock prices this high since the fall of 2018.
A mixed report, modest guidance…
The actual report wasn’t terribly impressive. Third-quarter sales rose 4.3% year over year, landing at $65.2 million. On the bottom line, the adjusted net loss increased from $0.05 to $0.21 per basic share. The analyst consensus targets pointed to a loss of roughly $0.17 per share on revenues near $62.6 million. Applied beat the Street’s revenue target, but fell short of earnings expectations.
The same pattern held true for the company’s forward-looking projections. The midpoint of management’s revenue guidance range points slightly above the current analyst view, while fourth-quarter profits were targeted just below the consensus estimate.
Why did a middle-of-the-road earnings report with modest forward guidance unleash an absolutely massive stock gain? As it turns out, Applied Optoelectronics sketched out a much brighter long-term picture in this report.
…and an incoming wave of AI orders
Earnings are coming in short right now because the company is gearing up to handle a large increase in incoming orders. The data center networking business is the core driver of this order tsunami, primarily focused on high-end 1.6-terabit fiber-optic transceivers. As expected, the trend sprung from the ongoing frenzy for artificial intelligence (AI) systems, which require lots of high-speed networking components.
On the earnings call, CFO Stefan Murry said that the demand for AI-related networking gear should be robust for a long time. The company’s existing large-scale customers are standing in line for more fiber-optic networking gear than ever, and new names are joining the queue.
These are the details pushing Applied Optoelectronics’ stock higher despite a lack of near-term catalysts. This jump is all about booming AI sales in the long run.
Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
