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Applied Optoelectronics, Inc. (AAOI): A Bull Case Theory

By Ricardo Pillai | October 08, 2025, 11:22 AM

We came across a bullish thesis on Applied Optoelectronics, Inc. on Value Degen’s Substack’s Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on AAOI. Applied Optoelectronics, Inc.'s share was trading at $26.34 as of September 25th. AAOI’s forward P/E was 84.03 according to Yahoo Finance.

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Applied Optoelectronics (AAOI) stands out as a speculative yet compelling beneficiary of the ongoing data center buildout, which shows no sign of slowing until lenders or hyperscalers curb spending. With U.S. data center construction projected at 10GW annually through 2030, demand for optical transceivers is set to surge, supporting AAOI’s growth trajectory. The company manufactures transceivers critical for converting fiber optic to electronic signals, a market expected to expand from $15 billion today to $35 billion by 2029.

AAOI has been approved as a supplier for at least three hyperscalers—Microsoft, Meta, and likely Amazon, with SEC filings confirming Amazon holds warrants tied to a potential $4 billion supply agreement. While not yet firm orders, early shipments are already driving performance, with Q2 revenue up 139% year-over-year and trailing twelve-month revenue up 77%. Current quarterly sales of $103 million are projected to rise another 12–23% in the near term.

AAOI’s past failures, including quality issues in 2018 that collapsed its stock from $70 to $2, still weigh on investor sentiment, explaining its high options volatility and cautious valuation. Yet management’s insider buying and growing hyperscaler ties indicate confidence in execution. If AAOI merely maintains its current 2% market share, revenues could surpass $1 billion by 2029, implying a modest doubling of market cap.

However, if it regains a 5% share, revenues could approach $2.5 billion, implying a market value near $9 billion and a stock price above $140, versus today’s $26. The key risks remain quality execution and sustainability of hyperscaler investment, but with hyperscalers generating $400 billion in annual operating cash flow and competing aggressively, the buildout appears durable. This sets AAOI up as a high-risk, high-reward play with asymmetric upside if market share expansion materializes.

Previously we covered a bullish thesis on Fabrinet (FN) by Industrial Tech Stock Analyst in April 2025, which highlighted the Amazon warrant deal as a strategic validation of Fabrinet’s role in hyperscaler supply chains and a catalyst for long-term growth. The company’s stock price has appreciated approximately by 83% since our coverage. This is because the thesis played out. The thesis still stands as Fabrinet remains a critical optical supplier. Unemployed Value Degen shares a similar view on data center growth but emphasizes AAOI’s hyperscaler approvals and potential market share expansion as a high-risk, high-reward play.

Applied Optoelectronics, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 15 hedge fund portfolios held AAOI at the end of the second quarter which was 16 in the previous quarter. While we acknowledge the potential of AAOI as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None. 

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