Applied Optoelectronics faces stock decline on poor earnings and guidance Applied Optoelectronics faces stock decline on poor earnings and guidance

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By Ronald Tech

Fiber optical cables

Investors in Applied Optoelectronics (NASDAQ:AAOI) were jolted by distressing news on Friday. The company’s stock plummeted by 38% in premarket trading due to an underwhelming earnings report and conservative forward guidance. Adding to the gloom, investment firm B. Riley downgraded the stock, further unsettling shareholders.

Disappointing Earnings and Forecast

Applied Optoelectronics stunned the market with a first-quarter revenue outlook in the range of $41M to $46M, in sharp contrast to analysts’ expectations of $66.3M. Additionally, the company foresees a GAAP loss of $0.28 to $0.33 per share, exceeding the anticipated loss of $0.75 per share. These figures provoked significant disappointment among investors, triggering the substantial sell-off.

Market Response and Analyst Downgrade

The market reaction was exacerbated by the context of Nvidia’s comments on artificial intelligence reaching a “tipping point.” Analyst Dave Kang cited this context as he lowered his rating on Applied Optoelectronics to Neutral from Buy. The company’s failure to align with the apparent growth in AI, especially concerning its partnership with Microsoft, raised further concerns. Despite a significant optical cable agreement with Microsoft, the latter has not shown substantial uptake in 400G AOC procurement, a fact that has puzzled analysts and shareholders alike.

Analysts’ Take and Contrary Opinions

Seeking Alpha authors have a HOLD rating on Applied Optoelectronics (AAOI). In contrast, Wall Street analysts have endorsed a STRONG BUY. Conversely, Seeking Alpha’s quant system, which consistently outperforms the market, rates AAOI a HOLD. The divergence in opinions from market analysts and data-driven quant systems adds an element of uncertainty for potential investors.


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