Overview
Applied Optoelectronics
AAOI · NASDAQQ3 2026Optical Networking · Datacenter Transceivers
Since the Report − 7.6%
Revenue grew 127.5% year over year, EPS beat the estimate by 21.4%; the stock fell 8.0% in its first reaction.
- RevenueQ3
- $269.9M
- Estimate $268.1M · Beat by 0.7%
- EPSAdjusted
- $0.17
- Estimate $0.14 · Beat by 21.4%
Verdict
HOLDRevenue rose 127.5% year over year to $269.9M, and the company returned to GAAP profitability. The stock still fell about 8% after hours because the midpoint of fourth-quarter revenue guidance came in 5.8% below the market expectation. The one thing to watch now is whether new capacity lifts gross margin above 30%.
Close on Report DayNov 5
$46.89▼ 8.0%Report-Day Move
- Market Cap(Today)
- ≈ $3.66 B
- 1Y Return(At Report)
- + 49%
- P/E(At Today's Price · $0.15 · Trailing 12M)
- 288.8
- Net Margin(Trailing 12M)
- − 9.6%
Earnings Summary
In 30 Seconds- Revenue rose 127.5% year over year to $269.9M, and the company swung to GAAP net income of $6.3M.
- The $402.5M midpoint of fourth-quarter revenue guidance was 5.8% below expectations, while gross margin stalled at 28.7%.
- After closing the session down 20.9%, the stock fell about 8% more after hours on the weak revenue guidance.
The Numbers
Datacenter Revenue
$155.6M
▲ 254% YoY · Share 57.7%
Adjusted Gross Margin
28.7%
Year Ago 31.0% · 2.3 Pt Contraction
Q4 Revenue Guidance
$385–420M
Estimate 427.3 · 5.8% Below
Stock Reaction
▼ ~8%
After Hours · Session ▼ 20.9%
Quarterly Revenue ($ Million)
119
Q3 25 · $119 M
134
Q4 25 · $134 M · QoQ + 13.2%
151
Q1 26 · $151 M · QoQ + 12.6%
192
Q2 26 · $192 M · QoQ + 27.0%
270
Q3 26 · $270 M · QoQ + 40.6% · YoY + 127.5%
385–420
Q4 26E · 385–420 · QoQ + 49.1% · YoY + 199.8%
- Q3 25
- Q4 25
- Q1 26
- Q2 26
- Q3 26
- Q4 26E
Q4 2026 Company Guidance
- Revenue385 – 420 M385 M420 M
Midpoint 402.5 · Market Expectation 427.35.8% Below Estimate ▼
- Adjusted Gross Margin29.5% – 31.0%29.5%31.0%
Q3 Actual 28.7% · Year Ago 31.0%1.6 Pt Expansion ▲
- Adjusted EPS0.48 – 0.63 $0.48 $0.63 $
Midpoint 0.56 · About 96M SharesIn Line ✓
- Adjusted Net Income45.9 – 60.4 M45.9 M60.4 M
Midpoint 53.2 · Q3 Actual 14.8259% Sequential Increase ▲
How to Read the Chart
The blue band is the company's low-high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. When the company gave a single number rather than a range and no market expectation is known, that row gets no band at all: there is no length to measure and no position to compare. Axis is ±16% around the midpoint.
Segment and KPI Data
Revenue by Segment
- Datacenter$156 MShare 57.7%▲ 254.2% YoY
- CATV$111 MShare 41.1%▲ 57.0% YoY
- Telecom$2.73 MShare 1.0%▼ 27.1% YoY
- Other$660 KShare 0.2%▲ 88.0% YoY
Key Metrics
Cash, Cash Equivalents and Restricted Cash
$621 M
Press Release
GAAP Net Income
$6.30 M
Press Release
Adjusted Net Income
$14.8 M
Press Release
Shares are computed over the segment total: $270 M. Source: Press Release.
Metrics come only from the company's own filings; each one names the document it was taken from.
“We are pleased to have generated record revenue for our sixth consecutive quarter and to have returned to GAAP profitability in Q3. We have made meaningful progress in scaling our manufacturing capabilities, particularly for our 800G and 1.6T products.”
- Sixth Straight Record Quarter
- 800G and 1.6T Capacity Ramp
- Hyperscale Customer Agreement
Summary and Review
Summary
Applied Optoelectronics reported third-quarter revenue of $269.9M. That is 0.7% above the market expectation and up 127.5% year over year. Adjusted earnings per share came in at $0.17 against an estimate of $0.14, a 21.4% beat. The company posted record revenue for the sixth straight quarter. It also swung to GAAP net income of $6.3M. However, the midpoint of fourth-quarter revenue guidance, $402.5M, was 5.8% below expectations.
The stock had already closed the November 5 session down 20.9% at $46.89. The selloff in optical stocks began before the report; Coherent and Lumentum also posted double-digit losses that day. After the release, shares fell 10% at first in after-hours trading and ended the evening down about 8%. The market did not read this report as a growth story. It read it as a guidance story, because investors were expecting a faster fourth-quarter jump.
The score is 52 and the verdict is hold. The revenue gate is in line, the earnings gate is open and the guidance gate is closed; that combination lands in the 50-59 band. Margin pulls the score down within the band: adjusted gross margin of 28.7% is 2.3 points below 31.0% a year ago. On the other hand, a plan to more than triple quarterly net income and a multi-year deal with a hyperscale customer keep the story intact.
Full Review
Datacenter is the growth engine.
Datacenter revenue was $155.6M. That is up 254% year over year. The segment's share of total revenue rose from 37% a year ago to 57.7% this quarter. The driver is 800G transceivers used in AI clusters. CATV revenue also grew 57% year over year to $110.9M. That line benefits from cable operators upgrading their networks. Telecom fell 27% to $2.7M, but it is less than 1% of the total. Revenue rose 40.6% from the prior quarter. The company now stands on two legs: fast-growing datacenter and steady CATV. Still, datacenter carries the valuation, because almost all capacity spending goes to those products. A year ago CATV was the largest line; today that order has flipped.
Margin is still below 30%.
GAAP gross margin was 28.2%. It was 27.7% in the prior quarter and 28.0% a year ago. Adjusted gross margin of 28.7% was 1.1 points below the prior quarter and 2.3 points below last year. Revenue more than doubled while margin stood still, which suggests new lines are not yet running efficiently. On a GAAP basis, the company posted a $1.4M operating loss. The shift to net income came largely from $10.1M of non-operating income. That distinction matters. Core operations are at breakeven, and financial items carry the profit. The company guides fourth-quarter adjusted gross margin of 29.5-31%. The midpoint implies 1.6 points of expansion from this quarter. Even if it happens, margin would only return to last year's level.
Strong guidance, but expectations were higher.
The company guided fourth-quarter revenue of $385-420M. The $402.5M midpoint implies 49% growth over the third quarter. The market expectation was $427.3M, so the midpoint is 5.8% short. Adjusted net income guidance is $45.9-60.4M. On about 96M shares, that is $0.48-0.63 per share, and the midpoint is in line with expectations. So there is no surprise on profit, but there is disappointment on revenue. The stock had lost about 59% over the past month. Investors wanted flawless guidance. What they got was good, not flawless. A rising share count also dilutes earnings per share. Diluted shares were 87.8M in the third quarter, versus 63.3M a year earlier.
Capacity and a new deal anchor the long term.
In the release, the company announced a multi-year strategic agreement with a Tier 1 hyperscale datacenter customer. Total manufacturing equipment capacity is approaching 330,000 units per month. By the end of 2026, it targets enough equipment for over 500,000 pieces of 800G and 1.6T products per month. The end-2027 target is over 1 million per month. However, the U.S. capacity expansion will take longer because of electrical power access and construction issues. Cash, cash equivalents and restricted cash rose to $621.5M, from $216.0M in December 2025. An equity sales program completed in October contributed to that increase. Part of the growth is being funded by diluting shareholders. Accounts payable also rose from $143.9M to $494.3M.
One line to watch next quarter.
Next quarter, watch one line: adjusted gross margin. The company's own range is 29.5-31%. If margin moves above 30%, new capacity is starting to turn into profit. In that case, revenue growth flows directly into earnings per share. If margin stays below 29%, the problem is efficiency, not volume. Then even the fourth-quarter revenue jump will not fix profitability on its own. The second gauge is datacenter share. If it stays above 55%, hyperscale demand is holding up. For a general framework, see the guide How to Read Earnings Day. Analyst targets date from before the report and have not yet been updated, so read them with caution. The average target is $156, based on six analysts.
Looking Ahead
Strengths and Risks
5 Strengths · 6 RisksStrengths
5- Revenue rose 127.5% year over year, a record for the sixth straight quarter.
- Datacenter revenue grew 254% year over year and reached 57.7% of total revenue.
- Adjusted EPS of $0.17 beat the estimate by 21.4%.
- The company signed a multi-year strategic agreement with a Tier 1 hyperscale customer.
- Cash and restricted cash rose to $621.5M, funding the capacity build-out.
Risks
6- The midpoint of fourth-quarter revenue guidance is 5.8% below the market expectation.
- Adjusted gross margin narrowed 2.3 points year over year to 28.7%.
- GAAP operating results are still a lossNon-operating income carried net profit.
- The U.S. capacity expansion is delayed by electrical power access and construction issues.
- The share count rises to about 96M in the fourth quarter, diluting earnings per share.
- The stock fell about 59% in the past monthThe optical selloff adds volatility.
What to Watch
4- Fourth-quarter 2026 earnings are expected in February 2027.
- The company targets over 500,000 units per month of 800G and 1.6T capacity by end-2026.
- Shipments under the hyperscale customer agreement will be tracked over the coming quarters.
- The end-2027 target of over 1 million transceivers per month remains in place.
Upcoming Earnings
To Understand This