Applied Optoelectronics: Sell on the Back Side of a Squeeze. It has a History of Failed Execution and Consistent Dilution
Applied Optoelectronics, Inc. (AAOI) released financial results and full year projections for 2026 last week. The stock has absolutely popped off, nearly doubling since the announcement and currently sits at around $100 with over a $7 billion market cap on Thursday. Analysts on Seeking Alpha are universally bullish on the company, excited over the very aggressive forecast of $1 billion in revenue and non-GAAP profits for this fiscal year and several billion in revenue for next. Nvidia’s investment into larger optical peer Lumentum Holdings Inc. (LITE) is also helping to buoy the stock.
I was a bull on AAOI in 2017 and wrote a couple of articles on Seeking Alpha about the company. So I have a pretty good handle on AAOI that isn’t tainted by recency bias. Do not base a bullish thesis on AAOI’s ability to execute on sky high forecasts. The company has a history of badly missing forecasts, heavy historical losses and accelerating dilution. While the recent results are a step in the right direction, the market reaction has been too bullish, likely aided by a short squeeze and retail FOMO pile-on. As it appears now to be on the back side of a short squeeze, investors should consider taking profits while they have them.
The primary focus of the rest of this article will compare the company to where it was in 2017 and its subsequent blow up. It was actually a stronger company back then than it was now at a fraction of the valuation. Then the wheels came off and it crashed about 80% in 18 months. Given AAOI’s history, I believe that investors who are buying based on lofty expectations are underestimating the risk that this company will, once again, fail to execute. The only thing this company seems to know how to do consistently is dilute its stock. Another risk factor being ignored right now is that AAOI’s #1 customer is not timely in paying invoices, causing accounts receivable to more than double over last year.
