Every time I refresh pricing on Applied Optoelectronics (Nasdaq: AAOI) on Monday morning, the stock seems to be rising. First it was up 10%, then 15%, and then after 8 a.m. it rose another 18 percentage points to trade up 33% as of 8:35 a.m. ET. That’s especially remarkable since the stock rose 57% on Friday.
Let’s look at three key reasons Applied Optoelectronics is rallying on Monday morning, and this pre-market rally is likely to turn into strong gains today.
Reason 1: Short Sellers Are Getting Squeezed
Heading into earnings, AAOI was one of the more heavily shorted small-cap tech names, with short interest representing a meaningful portion of the available float — more than double the peer group average.
When a stock with that kind of short positioning reports a blowout quarter, the math gets brutal for bears fast. Short sellers are forced to buy shares to close their positions, and that forced buying stacks on top of organic demand from new investors entering the story. That combination can sustain a move well beyond the initial catalyst. Monday’s premarket action looks like exactly that continuation.
With roughly 68 million shares outstanding and institutions holding about 75% of the float, the available supply for short sellers to borrow is already tight. A squeeze of this size does not unwind in a single session.
Reason 2: AAOI Has Become a Social Media Darling
The AI infrastructure trade is one of the most-watched themes on retail-focused platforms right now, and AAOI has landed squarely in the middle of it. The company makes high-speed optical transceivers, the fiber optic components that physically move data inside hyperscale data centers. Investors have watched Lumentum (Nasdaq: LITE) soar 967% in the past year and are looking for other stories in the space.
My investment-focused feed on X was full of Applied Optoelectronics posts this weekend. One very notable account talking about the stock was Serenity. The account is new, but has been quickly followed by 90,000 investors. It was one of the earlier accounts to follow the story around AXT Inc. (Nasaq: AXTI), and that stock is up 250% since the beginning of December. Last week, Serenity also focused on IQE, and the stock’s LSE shares are up 88% in the past five days. This morning I was watching shares of Nlight (Nasdaq: LASR), which were up about 7% pre-market. After a post on the company by Serenity, they jumped to now being up 24%.
The key point here is similar to early 2021, we’re in an era where widely followed accounts can have dramatic impacts on stocks. Just a week ago, wide swaths of the market were crushed by a macro article published by Citrini. Serenity and many other widely-followed accounts on X have been posting about Applied Optoelectronics throughout the weekend. That’s definitely leading to significantly more interest in the company.
Reason 3: The Market Is Repricing What This Company Is Worth
Finally, let’s just look at the numbers.
I was live-blogging Applied Optoelectronic’s earnings and noticed immediately the market wasn’t properly accounting for how absolutely wild their call was. Here’s what I said in an update after the earnings call:
“All I can say is holy cow. We recommended AAOI back at $22.36 in 24/7 Wall St’s $500,000 AI Portfolio. That price is looking like a steal and I’d be surprised if shares didn’t rise even more than where they’re at right now by tomorrow’s open.“
At the moment, the shares were up only 16% after hours, which looked like an absolute steal considering what the company had just said.
As a reminder, Applied Optoelectronics forecasted revenue over $1 billion this year (with non-GAAP operating profit of $120 million).
Critically, management also stated that demand is projected to outpace production capacity through mid-2027. Near the end of the call they also upped expectations for 2027 dramatically. Here’s the exact quote:
“Given the recent surge in customer inquiries and apparent rising demand, we believe that by mid-2027, 100G and 400G revenue will be approximately $90 million. 800G revenue will be approximately $217 million and 1.6 terabit revenue will be approximately $71 million monthly. Altogether, this represents $378 million in monthly revenue for transceiver products.”
The math here is pretty clear: a $378 million monthly run rate would represent $4.5 billion in annual revenue. Lumentum is forecast to generate $4.5 billion in renvue in 2027 and is currently worth $50 billion.
Lumentum has superior technology compared to Applied Optoelectronics, so the point here isn’t that they should be worth the same amount. However, the gap in the valuation between Applied Optoelectronics and other optics plays will lead to more interest in the company.
What to Watch
As I’m hitting publish on this article, I see NVIDIA just announced it’s investing $4 billion into Lumentum and Coherent. That’s going to pour even more fuel on the fire behind optical stocks. It could be a very crazy day across the space.
If you’re looking for more ideas in the space, I offer them (free!) on the AI Investor Podcast. We had buy recommendations on LITE at $83.85 (up 800% at pre-market pricing), Applied Optoelectronics at $22.35 (up more than 400% in premarket pricing), and many more.
To listen in as we keep recommending new stocks at the start of 2026, simply subscribe in your favorite podcast player.
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