AAOI Stock Surges 129% in a Month: Should You Buy, Sell or Hold?

Applied Optoelectronics AAOI shares have surged 128.6% in the past month, outperforming the Zacks Electronics - Semiconductors industry’s decline of 5.5%. The rise in share price can be attributed to better-than-expected fourth-quarter 2025 results.

Applied Optoelectronics reported fourth-quarter 2025 non-GAAP loss per share of a penny, narrower than the Zacks Consensus Estimate of a loss of 12 cents. The company reported a loss of 2 cents per share in the year-ago quarter. In the fourth quarter of 2025, Applied Optoelectronics reported revenues of $134.3 million, which was roughly in line with the Zacks Consensus Estimate. The figure appreciated 34% year over year. AAOI's strong quarterly performance reflected continued strength in both the data center and CATV businesses.

The stock also outperformed its peers in the optical networking market, including Lumentum LITE and Coherent COHR. In the past month, shares of Lumentum and Coherent have gained 12.8%, 11.6%, respectively.

One-Month Price Return Performance

This outperformance of Applied Optoelectronics shares raises the question: Does it still have room to run, or is it time for investors to consider taking profits? Let’s find out.

800G Transceivers to Boost AAOI’s Data Center Momentum

Applied Optoelectronics is preparing to ramp up 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 rose 141% year over year, while 100G product sales increased 54% on a year-over-year basis.

Applied Optoelectronics has received 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.

Valuation: AAOI Trades Below Industry

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-Month P/S Ratio

AAOI stock trades at a lower P/S multiple compared with Lumentum, while trading at a higher P/S multiple compared with Coherent. At present, Lumentum and Coherent have P/S multiples of 10.97X and 5.88X, respectively.

Applied Optoelectronics Faces Stiff Competition

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

Coherent and NVIDIA NVDA 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 Faces Risks From Tariffs and Rising Operating Costs

A key concern is the sharp increase in operating expenses. In the fourth quarter, non-GAAP operating expenses rose to $49.3 million compared with $31.5 million in the same quarter last year. As a percentage of revenues, Operating expenses rose to 37% in the fourth quarter, up from 31% in the year-ago quarter. Operating expenses are expected to remain high in the near term. The company guided that non-GAAP operating expenses will range between $50 million and $57 million per quarter in 2026. This suggests that spending will stay elevated as the company continues to invest in its business.

Another key risk for Applied Optoelectronics is the impact of tariffs on its costs and operations. Tariffs had a $1.2 million direct impact on the income statement in the fourth quarter, and tariffs on capital equipment added another $3.1 million in costs during the fourth quarter. In 2025, the company paid about $7 million to $8 million in tariffs. While the company is evaluating whether some of these payments could be recovered, management indicated that the situation is complex and not all tariffs fall under the same rules. As a result, there remains an uncertainty around whether these costs can be recovered.

Conclusion: Hold AAOI Stock Right Now

Applied Optoelectronics remains well-positioned to benefit from strong demand from hyperscale data center customers. The company is expanding its manufacturing footprint to increase production capacity for 800G optical transceivers, which is expected to become the largest contributor to the data center segment starting in the second quarter of 2026.

However, near-term challenges, such as rising operating expenses, tariff uncertainty and stiff competition in the optical networking market, could hurt AAOI's near-term prospects.

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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