Checking Applied Optoelectronics’ Valuation After AI Data Center Wins And Pre Earnings Momentum

Applied Optoelectronics (AAOI) shares have been in focus after a run to nine year highs, with investors reacting to a cluster of events around earnings, new data center products, and fresh manufacturing capacity.

See our latest analysis for Applied Optoelectronics.

The recent run has been sharp, with a 51.06% 1 month share price return and a 137.40% 3 month share price return as investors react to earnings anticipation, new AI focused data center products, and the Texas capacity expansion. The 1 year total shareholder return of 97.51% and very large 3 year total shareholder return indicate strong recent momentum rather than a short lived spike.

If this AI data center story has your attention, it could be a good moment to broaden your radar with our list of 34 AI infrastructure stocks identified by the Simply Wall St screener.

With AAOI now near nine year highs, a recent US$53.96 share price, strong recent returns and a US$36.60 analyst price target, the key question is whether enthusiasm has run ahead of fundamentals or if the market is still underpricing future growth.

Most Popular Narrative: 47.4% Overvalued

Applied Optoelectronics' most followed narrative sets a fair value of $36.60, which sits well below the recent $53.96 share price and frames a punchy growth story that still needs to be executed on.

Ongoing expansion and ramp-up of domestic (U.S.) and Taiwan-based manufacturing for advanced transceivers, with capacity expected to increase more than 8x by year-end and major customers requiring U.S.-based production, provides a competitive edge and reduces tariff/supply chain risks, supporting higher future revenue visibility and potential margin stability.

Read the complete narrative.

Curious what kind of revenue climb, margin shift, and future earnings multiple are baked into that fair value line? The narrative leans on aggressive growth, a profitability turn, and a valuation profile that assumes those projections land close to plan without spelling out every hurdle along the way.

Result: Fair Value of $36.60 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, this story can quickly change if customer concentration remains extreme or if heavy capital expenditures and working capital needs continue to strain cash flow.

Find out about the key risks to this Applied Optoelectronics narrative.

Next Steps

If this mix of excitement and caution around AAOI feels familiar, do not wait on others to decide the story for you. Take a closer look at the company's balance of potential upside and key watchpoints through our summary of 1 key reward and 2 important warning signs.

Looking for more investment ideas?

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• Target rock solid balance sheets by scanning our solid balance sheet and fundamentals stocks screener (42 results), backed by cleaner debt profiles and steadier fundamentals.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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