Applied Optoelectronics Stock Slides To 4-Week Low After Downgrade, Flagging Revenue Risk: Retail Bearish

Shares of Applied Optoelectronics tumbled over 8% in mid-day trading on Tuesday, to levels last seen on Nov. 20, after B. Riley downgraded the stock.

The brokerage revised its rating on the stock to ‘Sell’ from ‘Neutral,’ keeping the price target of $14. 

B. Riley expressed concerns about a slowdown in demand for 400 Gigabit Ethernet (G) technology, a key revenue driver for AAOI. 

The brokerage flagged that without qualification of the faster 800G technology by hyperscalers — large-scale cloud service providers — Applied Optoelectronics could struggle to sustain its quarterly revenue of approximately $100 million, most of which currently comes from its cable TV business.

The downgrade also highlighted broader market challenges like the shift to 800G requiring significant infrastructure investment, and the IEEE’s ongoing efforts to establish 800G standards suggest it may take time for widespread adoption. 

Many hyperscale data centers are still transitioning to 400G technology, a mature and proven standard. 

Meanwhile, competing technologies like 1.6 Terabit Ethernet (1.6T) are already under development, potentially delaying the industry's move to 800G.

Applied Optoelectronics Sentiment and Message Volume on Dec 10 as of 2:30 p.m. ET | Source: Stocktwits

Retail sentiment around the stock dipped to ‘bearish’ (29/100) from ‘neutral’ a day ago with chatter remaining in the ‘normal’ territory.

Some users on Stocktwits anticipated the stock to fall amid increasing volatility and the bearish trend in the broader technology sector due to Nvidia’s regulatory hurdles.

Despite the day's losses, Applied Optoelectronics remains up nearly 79% year-to-date, reflecting earlier gains from optimism around its technology roadmap. 

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