QS Research · Michael Burry's Scion Capital analyst template · 2006
APPLIED OPTOELECTRONICS, INC. (AAOI)
As of 2026-11-08 · 13/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction low · base case none · downside -54% · upside +10%
AAOI is a no-earnings cyclical trading at 5.41x EV/Sales on TTM revenue of $747.2M, the same sales multiple as profitable Coherent at 5.09x and Cisco at 6.01x while TTM EBITDA is -$8.0M and free cash flow is -$315.2M. On Fabrinet's 2.14x the equity is worth about $23.22 (-54%), and even Cisco's 6.01x gives only $55.08 (+10%), so the risk/reward is bearish but the base case at today's 5.41x is roughly today's $50.13 price, not -30% or lower. I am not normalizing earnings because there are no positive operating earnings to average; TTM revenue is 2.8x the FY2020-FY2025 average, so the current sales base is a peak. The Q4 2026 guide and Tier 1 LTA are real catalysts, but until the multiple compresses or the earnings become cash-backed, this is a watch, not a long or a short.
Key numbers
- Share price: $50.13
- Market cap: $4.55B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $747.2M
- Price / book: 2.03x
The 15 boxes
- ✓ 1. Long-form business notes
AOI is a vertically integrated optical networking supplier selling components through turn-key equipment into four end markets; FY2025 revenue was $455.7M with 30.0% gross margin and a $38.2M net loss, and CATV (53.8%) overtook internet data center (42.9%). The oldest report provided (FY2020) showed the opposite mix (73.9% data center, 16.2% CATV), lower revenue ($234.6M) and gross margin (21.5%), while operating losses and accumulated deficits persisted. FY2025 operating cash flow was negative and capex stepped up sharply.
- ✓ 2. Competitive advantage
No durable competitive advantage is visible in the sources: operating income and net income were negative every year FY2020-FY2025, operating cash flow was negative every year, and gross profit dollars were volatile. The FY2025 10-K describes an intensely competitive market with larger rivals, names ten major competitors, and reports 96.6% top-ten customer concentration in 2025. The company's claimed edge is its MBE/MOCVD processes and vertically integrated model, but that model carries high fixed costs and has not produced operating profits.
- ✓ 3. 10-Q takeaways
Q3 2026 revenue was a record $269.9M, +127.5% YoY, with data center +254.2% and CATV +57.0%; gross margin was 28.2%. The quarter still had a $(1.4)M operating loss, and the $6.3M net income depended on $10.1M total other income, including a ~$3.5M Texas grant. Nine-month revenue was $612.9M (+90.7%), operating loss $(39.2)M, net loss $(30.8)M; cash was $621.5M after ATM raises and capex was $702.1M. Q4 2026 guidance is $385-420M revenue and $0.48-$0.63 non-GAAP EPS; a subsequent 3-year hyperscale LTA covers 10% of certain 1.6T products through May 2029.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ✓ 11. Impression of the shareholder letter
Filled; members read this box.
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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