How Applied Optoelectronics became the latest viral AI stock

By Britney Nguyen

Shares of the optical-networking provider have nearly tripled so far this year as AI players seek out high-bandwidth, low-latency connectivity products

Applied Optoelectronics gave an upbeat forecast last week, helping to catalyze huge stock gains.

A prior version of this story incorrectly listed the consensus forecast for the company's 2026 revenue.

In just a matter of days, Applied Optoelectronics has become one of the market's hottest technology stocks.

Not only does Applied Optoelectronics (AAOI) play into the booming optical-networking market, but it also recently offered a $1 billion revenue forecast for the year - well exceeding the $835 million that analysts tracked by FactSet had been anticipating ahead of the report.

The company is "a direct beneficiary of soaring optical-transceiver demand" from both the artificial-intelligence data-center buildout and market-share losses by China-based suppliers, Needham analyst Ryan Koontz said in a note last Friday. Applied Optoelectronics designs, manufactures and supplies high-speed optical transceivers, which are used to convert electrical signals into light for fast data transmission in data centers.

Despite some "execution risk," Koontz said the demand tailwinds, which have caused Applied Optoelectronics to boost its capital expenditures, will likely be "transformative to results."

The company is expected to start ramping its new 800G transceivers in the second quarter of this year, and Koontz said that push should drive strong growth in Applied Optoelectronics' data-center business through 2027. In fact, demand for the product is expected to outstrip supply through the middle of next year, he added.

See more: Coherent and Lumentum shares pop on Nvidia deals. Why optical stocks are so hot these days.

Koontz sees the 800G ramp driving the company's expectations for more than $1 billion in revenue in 2026. The company missed revenue expectations for 800G in the fourth quarter, but attributed that to a firmware issue that impacted interoperability for customer Amazon.com (AMZN).

Applied Optoelectronics' stock jumped 22% on Monday, after soaring almost 57% in Friday's session following its earnings report. Shares have nearly tripled so far in 2026, up 193% over that period, and are now outpacing the year-to-date performance seen for red-hot memory play Sandisk (SNDK).

Optical-networking products are gaining more attention as they provide high-bandwidth and low-latency connectivity for more intense high-performance computing and AI workloads. Nvidia announced two nonexclusive agreements on Monday with Coherent (COHR) and Lumentum Holdings (LITE) that included multibillion-dollar purchase commitments for their optical-networking offerings and advanced laser systems.

Still, Raymond James analyst Simon Leopold said he would "caution investors to discount" Applied Optoelectronics' guidance for $378 million in monthly data-center revenue by the middle of next year, which it based on current supply-and-demand dynamics. That would annualize to $4.5 billion in revenue, Leopold said, which he deemed "too aggressive," though possible in an ideal scenario.

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-Britney Nguyen

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03-03-26 0824ET