Applied Optoelectronics Shares Slide Nearly 9% as AI Optics Sell-Off Deepens, Stock Falls Below $90 Mark

NEW YORK — Shares of Applied Optoelectronics fell sharply Wednesday, extending a steep decline for the fiber-optic components maker as investors continued to pull back from optical networking stocks tied to artificial intelligence spending.

Applied Optoelectronics shares were down $8.59, or 8.8%, at $89.19 in midday trading on the Nasdaq. The stock had closed Tuesday at $97.78 after falling 2.9% that session, and dropped below $90 for the first time in recent weeks.

The company did not release any news Wednesday that would explain the decline.

Optics stocks under pressure

The drop extends a broad sell-off in optical component stocks, which surged over the past year on expectations of soaring demand for data center equipment needed to power artificial intelligence.

In recent sessions, Applied Optoelectronics has repeatedly fallen alongside peers including Lumentum and Coherent. Last week, optical stocks were sold as a group, with Applied Optoelectronics falling 9% in one session as investors took profits following large gains.

Analysts noted that the pressure has landed hardest on companies whose shares rose the most. Applied Optoelectronics designs and builds optical transceivers and components in its own plants, tying its earnings closely to production yields, volume and pricing on a relatively narrow product set. That concentration can amplify losses when investor sentiment shifts.

Concerns over AI spending

The decline comes amid growing concern about the pace of AI infrastructure spending and its effect on demand for optical networking equipment.

Technology stocks have been under pressure in recent sessions. The Nasdaq composite fell Wednesday after a report showed consumer prices rose more than expected in September, pushing Treasury yields higher. Higher yields tend to weigh on growth stocks, whose valuations depend heavily on expectations for future profits.

Memory chip stocks have also slumped amid concerns about rising competition from China, adding to pressure across the semiconductor sector.

Investors are awaiting results from Taiwan Semiconductor Manufacturing on Thursday for further signals on the strength of AI-related demand.

Share sale overhang

Applied Optoelectronics has also faced pressure from concerns about dilution. In August, the company announced an agreement allowing it to sell up to $600 million of new stock over time through an at-the-market offering, with Raymond James and Needham acting as sales agents.

The stock fell 14% in a single session after that announcement, as investors worried that new share sales would reduce the value of existing holdings. Recent coverage has pointed to the share-supply overhang as a factor weighing on sentiment.

Insiders have also sold shares. Over the past three months, company insiders sold 54,172 shares worth about $6.3 million, according to regulatory filings.

Strong growth, ongoing losses

The sell-off comes despite strong revenue growth. In its most recent quarter, Applied Optoelectronics reported revenue of $191.92 million, up 86.3% from a year earlier, and earnings of 6 cents per share on an adjusted basis, beating analysts' expectations.

However, the company remains unprofitable on a reported basis, posting a net loss of $22.78 million for the quarter. Over the past 12 months, it has generated revenue of about $596 million and a net loss of about $57 million.

The company has been investing heavily to expand production capacity. In July, it began expanding its manufacturing campus in Pearland, Texas, to increase production of 800G and 1.6T optical transceivers, high-speed components used in AI data centers.

Volatile stock

Applied Optoelectronics has been one of the market's most volatile stocks. Over the past year, its shares have traded between $18.50 and $233.67, reflecting dramatic swings in investor enthusiasm for AI-related hardware.

Even after recent losses, the stock remains well above its level of a year ago. But it has fallen sharply from its peak and now trades well below its 50-day and 200-day moving averages, technical indicators closely watched by traders.

Analyst views

Analyst sentiment on the stock is mixed. The consensus rating is hold, with an average price target of $139.40, according to MarketBeat, well above the current share price.

Needham recently lowered its price target to $190 but kept a buy rating on the stock. Raymond James raised its target to $178 in August, before the share sale announcement.

Investors will be watching for signs that demand for high-speed optical components remains strong as major technology companies continue to build out AI infrastructure.

Applied Optoelectronics is expected to report third-quarter results in the coming weeks, which will offer an update on its revenue growth, production expansion and progress toward profitability.

Results from major chipmakers and cloud companies later this month will also be closely watched for clues about the outlook for AI-related spending.