AAOI: A Critical Link in the AI Revolution

AAOI Company Overview

Applied Optoelectronics (AAOI) manufactures fiber-optic networking products for the cable TV, fiber-to-the-home, and data center markets. The Zacks Rank # (Buy) stock manufactures laser transceivers, which are a compact, high-performance module that acts as a bridge between electrical and optical communication. This technology translates electrical data signals from network equipment (such as switches, routers, or GPUs). Laser transceivers are critical to the AI revolution because they overcome the speed and bandwidth limitations of traditional copper cables, making them valuable for enabling the massive, low-latency data flow required from training and operating large AI models. Additionally, with copper prices rising currently, these fiber optic cables are even more valuable.

New Bullish Catalyst: Hyperscale AI Contract Win

AAOI announced that it has landed its first volume order of 800G transceivers from a major hyperscale customer (rumored to be Amazon (AMZN)). This order will immediately be reflected in AAOI revenues. Additionally, when a company receives an order from a major tech juggernaut like Amazon, more orders often follow as new data centers are built.

Big Technical Breakout Signals Demand

Amid the contract win and multiple analyst updates, investors are rushing to get into AAOI shares. Shares are breaking out of a multi-week base structure and up more than 20% for the session as volume turnover has swelled to more than two times the norm, signaling massive institutional demand.

Meanwhile, roughly 18% of the float is short the stock. In other words, shorts are likely to be squeezed out of their shares in the coming days.

Explosive Revenue Growth

Wall Street analysts expect AAOI to grow revenues by a healthy 67% in 2026. However, this number is likely to be revised higher as the hyperscaler deal is taken into account.

Data Center Spending is Ramping

While 2025 was a strong year for data center spending, it is only expected to ramp further into the new year.

As competition between LLMs like ‘Gemini’ and ‘ChatGPT’ heats up, spending will increase. Meanwhile, 2026 is likely to be the year when robots and physical AI begin to appear in the mainstream (each of which requires data centers to train the AI).

Deep-Pocketed Customers

Beyond Amazon, AAOI has several deep-pocketed customers that are likely to spend more on AI including Oracle (ORCL) and Microsoft (MSFT).

Bottom Line

As the battle for AI supremacy intensifies among global tech leaders, the demand for robust, high-performance networking hardware has never. Applied Optoelectronics finds itself at the center of this transition, benefitting from both a shift away from expensive copper and a surge in data center expansion.

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This article originally published on Zacks Investment Research (zacks.com).

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