Shares of Applied Optoelectronics jumped Friday after the networking supplier reported earnings, giving a boost to investors who hope it can be more than a meme stock.
The company, which makes optical transceivers for artificial-intelligence data centers, reported better-than-expected earnings, but its guidance came in short. Wall Street, however, is looking toward the end of 2026, when sales of Applied Optoelectronics' most advanced transceivers are expected to ramp up.
Applied Optoelectronics is the largest holding in the Roundhill Meme Stock exchange-traded fund, which relaunched in 2025. Barron's wrote skeptically about the ETF at the time. Its predecessor had marked the top of the meme-stock craze in 2021.
The stock surged 8.4% to $134.59 on Friday. Nearly 14 million shares had changed hands by 11 a.m. Eastern time, surpassing trading activity for much larger hardware names like Advanced Micro Devices and Broadcom.
Applied Optoelectronics reported adjusted earnings of six cents a share for the quarter, which exceeded Wall Street estimates and marked its first adjusted profit since 2023. Revenue jumped 86% year over year to $191.9 million, above analysts' forecasts for $190.5 million.
Third-quarter guidance disappointed, with the company forecasting adjusted earnings per share of 11 cents to 26 cents. Analysts had come into the earnings report expecting adjusted earnings of 28 cents a share for the third quarter.
The earnings call had some positive signals for medium-term demand, though. Applied Optoelectronics expects to begin shipments of advanced 1.6 terabyte transceivers at the end of the third quarter. The company's 1.6 terabyte and 800 gigabyte transceivers should combine for revenue of around $330 million in the fourth quarter.
The company is widely known to count Amazon.com and Microsoft among its AI clientele, with an undisclosed third hyperscaler also making large purchases this year.
"Soaring optical transceiver demand and share shifts away from Chinese vendors opens a clear path to achieve transformative [multibillion-dollar] revenue growth," Ryan Koontz, an analyst at Needham, wrote in a research note Friday.
Applied Optoelectronics has certainly had the look of a meme stock. The company has posted consistent net losses and more than 13% of shares are sold short. Alongside Meta Platforms, its leveraged ETFs -- which magnify short-term volatility -- had the most inflows of U.S. stocks tracked by Wells Fargo last week.
But some of the hype is fading. Shares trade at 33 times projected earnings over the next 12 months, down from more than 80 times in early May. That is a discount compared with the multiples of optical networking leaders Coherent and Lumentum Holdings.
Applied Optoelectronics is also taking steps to build up the business rather than maximize short-term returns. The company made $565.5 million in capital expenditures in the second quarter and will continue investing in the second half of the year as it builds a new facility in Texas.
"Once complete, we continue to believe that we will have the largest AI-focused data-center transceiver production capacity in the U.S.," Chief Financial Officer Stefan Murry told investors on a conference call.
Following the earnings results, Needham cut its price target on Applied Optoelectronics stock to $190 from $220 to reflect somewhat lower estimates, but reiterated a Buy rating.
Comments