Will AAOI's 800G Transceivers Accelerate Its Data Center Momentum?

Applied Optoelectronics AAOI is preparing to increase production of its 800G optical transceivers as demand from hyperscale data center customers continues to rise. Management expects its 800G optical transceivers to become the largest contributor within the company’s data center segment starting in the second quarter of 2026.

In the fourth quarter of 2025, AAOI reported data center revenues of $74.9 million. The metric increased 69% year over year and 70% sequentially. Growth was driven by strong demand for high-speed transceivers. Sales of 400G products increased 141% year over year, while 100G product sales rose 54% on a year-over-year basis.

Applied Optoelectronics has received an 800G buying order from a major hyperscale customer during the fourth quarter after the successful qualification of its 800G modules. Another existing hyperscale customer has indicated plans to start ordering 800G products. In addition, a new hyperscale customer has begun discussions to qualify AAOI’s 800G and 1.6T transceivers.

AAOI ended 2025 with about 90,000 units per month of 800G production capacity. The company forecasts demand for 800G modules to exceed the company’s production capacity through mid-2027. To support this demand, AAOI is expanding its manufacturing footprint in Texas. The company has signed a lease for an additional building in Sugar Land, Texas, where construction has already started. This facility will help increase production in 2026.

By the end of 2026, the company expects to have the capability to produce more than 500,000 units per month of 800G and 1.6T products. Looking ahead, if the 800G ramp progresses as expected, it could support further growth in AAOI’s data center segment. The Zacks Consensus Estimate for 2026 and 2027 revenues indicates a year-over-year increase of around 107.6% and 90.1%, respectively.

How Competitors Fare Against AAOI

Applied Optoelectronics faces stiff competition from the likes of Lumentum LITE and Coherent COHR in the optical networking market.

Coherent and NVIDIA recently announced a multi-year strategic agreement to develop advanced optical technologies used in AI data centers. As part of the deal, NVIDIA has made a multibillion-dollar purchase commitment for Coherent’s laser and optical networking products. In addition, NVIDIA will invest $2 billion in Coherent to support research and development, expand manufacturing capacity and strengthen operations as Coherent increases its U.S.-based production capabilities.

NVIDIA has also announced a multi-year strategic partnership with Lumentum to develop advanced optical technologies used in AI data centers. Under the agreement, NVIDIA has made a multibillion-dollar purchase commitment for Lumentum’s advanced laser components. In addition, NVIDIA will invest $2 billion in Lumentum to support research and development, expand manufacturing capacity and strengthen operations as Lumentum builds a new fabrication facility in the United States.

AAOI’s Price Performance, Valuation & Estimates

Shares of AAOI have surged 312% in the past six months, outperforming the Zacks Electronics - Semiconductors industry’s return of 2.6%.

AAOI 6-Month Price Performance

Applied Optoelectronics is currently trading at a lower price-to-sales (P/S) multiple, below the Zacks Electronics - Semiconductors industry. AAOI’s forward 12-month P/S ratio sits at 7.51X, slightly lower than the industry’s forward 12-month P/S ratio of 7.56X.

AAOI Forward 12 Months (P/S) Valuation

The Zacks Consensus Estimate for Applied Optoelectronics’ 2026 earnings is pegged at 84 cents per share, up by 52.7% over the past 30 days, and marking a substantial year-over-year increase.

Currently, Applied Optoelectronics carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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