Shares of Applied Optoelectronics (AAOI 48.10%) skyrocketed on Friday. A mixed earnings report sent the stock soaring, reaching a 51.4% gain as of 2:15 p.m. ET. The maker of fiber-optic networking equipment and components hasn't seen stock prices this high since the fall of 2018.
The actual report wasn't terribly impressive. Third-quarter sales rose 4.3% year over year, landing at $65.2 million. On the bottom line, the adjusted net loss increased from $0.05 to $0.21 per basic share. The analyst consensus targets pointed to a loss of roughly $0.17 per share on revenues near $62.6 million. Applied beat the Street's revenue target, but fell short of earnings expectations.
The same pattern held true for the company's forward-looking projections. The midpoint of management's revenue guidance range points slightly above the current analyst view, while fourth-quarter profits were targeted just below the consensus estimate.
Why did a middle-of-the-road earnings report with modest forward guidance unleash an absolutely massive stock gain? As it turns out, Applied Optoelectronics sketched out a much brighter long-term picture in this report.
Earnings are coming in short right now because the company is gearing up to handle a large increase in incoming orders. The data center networking business is the core driver of this order tsunami, primarily focused on high-end 1.6-terabit fiber-optic transceivers. As expected, the trend sprung from the ongoing frenzy for artificial intelligence (AI) systems, which require lots of high-speed networking components.
On the earnings call, CFO Stefan Murry said that the demand for AI-related networking gear should be robust for a long time. The company's existing large-scale customers are standing in line for more fiber-optic networking gear than ever, and new names are joining the queue.
These are the details pushing Applied Optoelectronics' stock higher despite a lack of near-term catalysts. This jump is all about booming AI sales in the long run.
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