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

 We came across a bullish thesis on Applied Optoelectronics, Inc. on Make Money, Make Time’s Substack by Oliver | MMMT Wealth. In this article, we will summarize the bulls’ thesis on AAOI. Applied Optoelectronics, Inc.'s share was trading at $34.47 as of January 14th. AAOI’s forward P/E was 84.03 according to Yahoo Finance.

Applied Optoelectronics, Inc. (AAOI) is an emerging player in the optical communications space, positioned as a smaller but highly aggressive competitor to Coherent, Inc. (COHR). The company differentiates itself through speed and pricing, allowing it to rapidly gain market share. AAOI has recently secured major contracts with Microsoft, signaling strong validation of its technology and growth strategy. The company is experiencing explosive growth, with estimated revenue increasing 65% in FY26 and EBITDA expected to nearly double with 93% growth, reflecting operational leverage and scale benefits.

While AAOI is currently not profitable at the net income level, the company is projected to achieve positive earnings in FY26, underscoring its transition from high-growth investment to sustainable profitability. Valuation metrics are distorted due to the early-stage profitability profile: next-twelve-month (NTM) EV/Sales sits at 3.8x, while NTM EV/EBITDA and P/E ratios—51.4x and 183.6x respectively—are less meaningful given the limited earnings track record.

Despite these elevated multiples, the combination of rapid revenue growth, high-margin potential, and strategic contract wins with top-tier clients positions AAOI as a compelling growth story in the photonics sector. Investors are likely to view the company’s trajectory as one with substantial upside, particularly as it leverages new contracts to scale operations and improve profitability. While short-term earnings volatility may persist, the long-term narrative of aggressive expansion, technological differentiation, and market validation makes AAOI a standout opportunity among optical communications peers.

Previously, we covered a bullish thesis on Fabrinet (FN) by Industrial Tech Stock Analyst in April 2025, which highlighted the strategic Amazon warrant deal, signaling long-term partnership and diversification beyond Nvidia. FN’s stock price appreciated by approximately 139.72% since our coverage. Oliver | MMMT Wealth shares a similar perspective but emphasizes Applied Optoelectronics, Inc.’s (AAOI) rapid growth and major Microsoft contracts as key catalysts.

Applied Optoelectronics, Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 27 hedge fund portfolios held AAOI at the end of the third quarter which was 15 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.