Applied Optoelectronics Hikes Guidance, Stock Jumps

Fiber-optics companies are rising as the sector rides a 'super cycle' of growth. (iStockphoto)

Applied Optoelectronics (AAOI), a small fiber-optic parts maker riding what analyst has called the sector's "supercycle," and whose largest customer is Amazon.com (AMZN), late Tuesday hiked its Q3 guidance, sending its shares rising.

Applied Optoelectronics stock had jumped nearly 120% from May 10 through Friday, when it hit a more than five-month high of 17.85. Shares fell a fraction on Tuesday but were up 14% to 19.85 in the stock market today, hitting a 10-month high intraday. The Sugar Land, Tex.-based company is slated to report Q3 earnings in early November.

Applied Optoelectronics stock fell 17% on May 10, after the company reported in-line Q1 results and gave disappointing EPS and revenue guidance. But it holds a strong IBD Composite Rating of 89, putting it among the top 11% of all stocks in key metrics such as revenue growth.

Besides Amazon, major Applied Optoelectronics customers include cable TV companies. Amazon Web Services, the biggest provider of public cloud computing services, and internet companies such as Facebook (FB) have been upgrading data centers packed with servers to 100 gigabit-per-second communications infrastructure.

"Applied Optoelectronics is in a position to see impressive growth over the next several quarters as demand for 100G optics continues to inflect," Troy Jensen, a Piper Jaffray analyst, said in a research report Wednesday, in which he raised is price target on Applied stock to 24 from 19.

Hot fiber-optics IPO Acacia Communications (ACIA) reported fiscal Q2 revenue growth of 101%, driven by data center growth and demand in China.

IBD'S TAKE: IBD's Telecom-Fiber Optics group is rated No. 1 out of 197 industry groups. While phone companies have historically been the biggest customers of fiber-optic parts makers, internet companies that build data centers for cloud services have emerged as a new revenue source. Learn more from this IBD Industry Snapshot on optical gear makers.

"We remain bullish on the company's announcement of a third Web 2.0 customer win," Jensen wrote. "The initial order from this new customer totals more than 10,000 transceivers over the next few quarters. We believe the initial revenue contribution over this time frame is $5 million, but we believe this win represents a compelling long-term revenue opportunity."

For the September quarter, Applied Optoelectronics now says it expects revenue of $64 million at the midpoint of its guidance, up from its prior outlook of $57.5 million. The company said it expects non-GAAP profit of 26 cents to 29 cents per share, vs. its earlier outlook of 16 cents to 21 cents per share.

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