QS Research · Michael Burry's Scion Capital analyst template · 2006
APPLIED OPTOELECTRONICS, INC. (AAOI)
As of 2026-11-06 · 12/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction low · base case +2% · downside -57% · upside +112%
AAOI is still priced on a sales/AI-capacity story rather than on proven earnings: normalized FY2020-FY2025 operating income averaged about -$55M and FCF about -$97M, while TTM to Sep 30 2026 is EBIT -$50.7M and FCF -$315.2M on $747.2M revenue. Keeping section 13's TTM revenue base, a CIEN-like 5.54x EV/Sales gives ~$51/share (+2%), versus ~$21 (-57%) at 1.91x and ~$106 (+112%) at 12.19x, so the stock sits mid-range and neither the long nor short rule is met. The possible mispricing is a first-time conversion of 28-31% gross margin into operating profit, but that has not happened in any year of the sample and is being funded with heavy dilution. This is a watch: interesting if Q4 2026 guidance proves the operating leverage, not yet a deep-value long.
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
AAOI is a vertically integrated optical networking supplier selling into CATV, internet data center, telecom and FTTH. FY2025 revenue was $455.7M with a 30.0% gross margin and a $38.2M net loss, but operating income was -$54.6M, so the business was not operating-profitable. The mix shifted from data-center-heavy in FY2020 (73.9% data center, 16.2% CATV) to CATV-heavy in FY2025 (53.8% CATV, 42.9% data center), with high customer concentration and negative operating cash flow through FY2025. The sources give annual data through FY2025 but no TTM.
- ✓ 2. Competitive advantage
No durable advantage is visible. AAOI sells into an intensely competitive optical-components market against Coherent, InnoLight, Eoptolink, Lumentum, Intel, Molex, Foxconn and others, and lists product pricing and manufacturing efficiency among the principal competitive factors. Its claimed edge is vertical integration plus MBE/MOCVD process know-how, but the record shows gross profit positive in every year FY2020-FY2025 and an operating loss in every one of those years (cumulative operating loss about $331M) with cash burn worsening as revenue grew. With top-ten customers at 96.6% of FY2025 revenue, no long-term contracts, and price as a named competitive factor, pricing power sits with the buyers; the only stickiness in the model (customer qualification/design wins) more often protects the incumbent supplier AAOI is trying to displace.
- ✓ 3. 10-Q takeaways
Q3 2026 was a sharp revenue ramp: $269.875M, up 127.5% YoY, with data center $155.609M (+254.2%) and CATV $110.879M (+57.0%). Gross margin was 28.2%, but the quarter still had a $(1.442)M operating loss; the $6.300M net income depended on $10.101M total other income, including a $3.5M Texas grant. Cash was $621.5M at 9/30/26 after heavy ATM issuance, while 9M 2026 operating cash flow was -$76.653M and inventory rose $186.6M. The excerpt gives no TTM figures.
- ✓ 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
- ○ 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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