A stellar quarterly earnings report from US-based optical module manufacturer Applied Optoelectronics ignited a broad rally across the optical communications sector on Friday.
The latest financial results show that Applied Optoelectronics recorded second-quarter revenue of $191.9 million, an 86% increase year-over-year, with its data center business surpassing the $100 million mark for the first time. Non-GAAP earnings per share came in at $0.06, exceeding the high end of the company's prior guidance range. The company also provided third-quarter revenue guidance of $255 million to $290 million and maintained its full-year target of approximately $1.1 billion. This news boosted market sentiment, sending shares of Coherent up 13% on the day, while Lumentum and Corning rose 6% and 5% respectively. Applied Optoelectronics shares themselves also gained 9%.
The strong performance was interpreted by the market as a positive signal for the entire optical communications industry. Analysts believe that Applied Optoelectronics’s better-than-expected results are a favorable indicator for Lumentum and Coherent, both of which are also deeply involved in AI data center optical interconnects. Both companies are scheduled to report their earnings next week and are backed by Nvidia's shareholding. Analysts predict that, driven by robust AI demand, both companies will continue to see growth in both revenue and profit.
Optical transceivers are core components of fiber optic transmission networks in data centers, with Coherent, Applied Optoelectronics, Lumentum, and Corning all playing critical roles in this supply chain. As investment in AI infrastructure continues to expand, these companies are viewed by the market as 'pick-and-shovel' beneficiaries of the wave of computing power buildout.
Separately, on August 5, reports emerged citing a media outlet on August 4 that sources said the US Federal Communications Commission (FCC) is drafting new rules aimed at banning the import of newly manufactured optical modules from China. However, institutions believe that such a policy would be difficult to implement, and even if enacted, its impact would be limited. Brokerages like Citic and Guosheng point out that the global high-speed optical module market is heavily dependent on Chinese manufacturers, making it difficult for North American demand to decouple from Chinese production capacity.
Data Center Business Breaks $100 Million, With 800G Emerging as the New Growth Driver
According to Applied Optoelectronics’s earnings report, the data center business surpassed the $100 million threshold for the first time. While this segment is accelerating, the CATV (Cable Television) business remains a significant component of the company's current revenue structure. Management anticipates that third-quarter CATV revenue will rise to between $100 million and $110 million, with full-year revenue expected to exceed $325 million. Mediacom has selected Applied Optoelectronics as its primary supplier for a DOCSIS 4.0 network upgrade, with products including 1.8GHz smart amplifiers and software solutions.
From a product mix perspective, 400G revenue reached $48.4 million in the second quarter, a more than fourfold increase year-over-year, and it remains a key pillar of the current data center business. However, the shift in 800G products is even more indicative of the trend. Second-quarter 800G revenue was $12.8 million, an increase of more than ten times year-over-year and more than double from the previous quarter. Management expects 800G revenue to approach a nearly fivefold sequential increase in the third quarter, indicating that the company's data center product growth focus is rapidly transitioning from 100G and 400G to higher-speed products.
Production Capacity Nears 10x Expansion, With Texas Becoming the Primary Hub
Notably, during the earnings call, Applied Optoelectronics management clearly stated that current customer demand exceeds the company's supply capacity by approximately 20% to 40%. Demand is no longer a bottleneck for growth. The core variables constraining revenue ramp-up have shifted to production capacity buildout progress, the supply assurance of key components, and the pace of customer certification for 1.6T products.
This was the most closely watched data point from the call. CFO Stefan Murry provided three specific milestones: monthly production capacity for 800G and 1.6T products has now reached nearly 200,000 units, up from about 100,000 units at the end of the first quarter; by the end of 2026, monthly capacity will exceed 650,000 units; and by the end of 2027, monthly capacity will further increase to over 930,000 units, with more than half of that capacity coming from Texas.
The 1.6T product is another highly anticipated growth driver. CEO Chih-Hsiang (Thompson) Lin confirmed on the call that Applied Optoelectronics will become the fourth supplier to receive 1.6T certification from a large-scale hyperscale data center customer. The certification is expected to be completed within two to three weeks, with shipments starting in the latter part of the third quarter and volume production ramping up in the fourth quarter. The CEO provided a clear outlook for fourth-quarter 1.6T revenue: “We still believe that fourth-quarter 1.6T transceiver revenue can exceed $70 million... The first quarter of next year should be much better. I wouldn't be surprised if it doubles.”
Management also outlined a longer-term roadmap: by mid-2027, monthly revenue from 100G and 400G products is expected to be around $90 million, 800G monthly revenue approximately $217 million, and 1.6T monthly revenue about $164 million, bringing total monthly data center transceiver revenue to roughly $471 million. However, achieving this trajectory depends on the coordinated progress of several factors, including equipment installation, customer certification, material supply, and manufacturing yields. CEO Lin acknowledged that supply of key 1.6T components, such as DSPs and TIAs, remains tight, and the primary constraint on fourth-quarter 1.6T deliveries will be material availability rather than production capacity itself.
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