Applied Optoelectronics Q1 Earnings Call Highlights

Key Points

• Applied Optoelectronics reported its fourth consecutive quarter of record revenue, citing accelerating AI-related demand; Q1 revenue was $151.1 million and management expects steady sequential growth with a larger ramp starting in Q3 as new capacity comes online.
• Data center sales jumped 154% year-over-year to $81.4 million, driven by a 36% rise in 100G and a tenfold increase in 400G; AOI completed its first volume 800G shipment, received a first volume 1.6T order from a hyperscaler, and expects strong volume ramps in Q2–Q3.
• AOI is aggressively expanding manufacturing (Texas footprint to ~900,000 sq ft) and targets >650,000 800G/1.6T units per month by end-2026 and >930,000 by end-2027, and now expects 2026 revenue to exceed $1.1 billion while approaching sustainable non-GAAP profitability beginning in Q2 (Q2 guide: $180–198M).

Applied Optoelectronics NASDAQ: AAOI reported first-quarter 2026 results that management said were in line with expectations, citing “robust demand” across its data center and CATV businesses and continued progress expanding manufacturing capacity. Founder, Chairman and CEO Dr. Thompson Lin said the quarter marked the company’s fourth consecutive period of record revenue and that customer demand tied to AI infrastructure deployments is accelerating.

“We generated our fourth consecutive quarter of record revenue as we executed well to expand our manufacturing capacity,” Lin said. He added that the company anticipates “steady sequential revenue growth throughout this year, with a significantly larger ramp expected starting in Q3 as additional capacity come online.”

Quarterly performance and segment mix

Chief Financial Officer and Chief Strategy Officer Dr. Stefan Murry said AOI delivered first-quarter revenue of $151.1 million, within the company’s guided range of $150 million to $165 million. Non-GAAP gross margin was 29.2%, in line with guidance of 29% to 31%, and non-GAAP loss per share was $0.07, within the guided range of a $0.09 loss to breakeven.

By end market, Murry said 54% of first-quarter revenue came from data center products, 44% from CATV products, and 2% from FTTH, telecom and other.

Data center revenue was $81.4 million, up 154% year-over-year and 9% sequentially, according to Murry. Within data center, he said sales of 100G products increased 36% year-over-year, while 400G sales increased “10-fold” year-over-year. The company also provided a breakdown of data center revenue mix:

• 41.9% from 100G products
• 46.7% from 200G and 400G products
• 5.6% from 800G transceiver products
• 5.6% from 10G and 40G transceiver products

CATV revenue totaled $66.8 million, up 4% year-over-year and 24% sequentially and at the high end of the company’s expectations, Murry said. He noted the company shipped “a significant quantity of 1.8 gigahertz amplifiers” to its largest CATV customer and said recent customer conversations suggest demand could be “somewhat higher” than AOI’s initial 2026 projections. Telecom revenue was $2.6 million, down 13% year-over-year and 50% sequentially, with Murry reiterating that telecom sales are expected to fluctuate quarter to quarter.

800G and 1.6T traction; hyperscaler orders

Management emphasized increasing engagement on 800G and 1.6T products. Lin said AOI completed its first volume shipment of an 800G single-mode transceiver to “one of our large hyperscale customer” in Q1 and expects a “strong volume ramp” beginning in Q2.

Murry quantified first-quarter 800G revenue at $4.6 million, or 5.6% of total data center revenue. He said AOI expects to ship “nearly four times the quantity of 800G” compared to Q1 shipments, alongside continued strength in 400G.

AOI also announced during the quarter that it received its first volume order for 1.6T transceivers from “another one of our long-term major hyperscale customers,” plus two new volume orders for 800G single-mode transceivers from the same customer. Murry said the company expects to begin delivering the 800G orders in Q2, the 1.6T order “as early as Q3,” and complete deliveries by year-end. He added AOI expects these orders to return the customer to “a 10%+ customer” for the company.

On the question-and-answer portion of the call, Lin told analysts forecast demand continues to outpace production capacity “throughout mid 2027” and said material availability is among the risks the company is actively managing with suppliers.

Capacity expansion, lasers, and tariff impacts

Murry outlined a broad manufacturing expansion plan, with a particular focus on Texas. He said AOI’s U.S. footprint is anchored in Sugar Land, Texas, and that through acquisitions and leases the company has expanded its Texas manufacturing footprint to about 900,000 square feet. This includes existing headquarters capacity, two new Pearland buildings, a 210,000-square-foot facility under development, and a 154,000-square-foot building in Houston.

According to Murry, the 210,000-square-foot facility—located a few hundred yards from headquarters—will be dedicated to 800G and 1.6T transceiver manufacturing, with initial production expected in the third quarter. He said the move is also intended to free space at headquarters for expanded indium phosphide capacity. Facilities in Pearland and Houston are expected to come online in early 2027.

Murry said the company exited Q1 with total manufacturing capacity approaching 100,000 units per month of 800G and 1.6T, and expects to expand to about 150,000 per month during the second quarter. By the end of 2026, the company expects it will be capable of producing over 650,000 pieces per month of 800G and 1.6T products, with about 30% from Texas, rising to over 930,000 pieces per month by the end of 2027 with “over half” from Texas.

He also discussed plans to scale external light source modules (ELSFP) for co-packaged optics, saying production is currently “very limited” but is expected to ramp later this year and into 2027, targeting roughly 400,000 pieces per month by the end of 2027. Lin and Murry both emphasized AOI’s in-house laser manufacturing as a strategic advantage, with Murry stating the company believes there is an industry shortage of indium phosphide laser capacity that could become more acute as ELSFP demand grows.

Murry also disclosed that direct tariffs had a $1.4 million impact on the first-quarter income statement. Following the overturn of the IEEPA tariff, he said AOI has applied for a refund it currently anticipates will be “at least $5.7 million,” though the company cannot yet estimate the recovery timeframe.

Margins, expenses, balance sheet, and outlook

On profitability, Murry said non-GAAP gross margin of 29.2% compared with 31.4% in Q4 2025 and 30.7% in Q1 2025. He characterized near-term data center revenue mix as “a slight headwind,” while reiterating a long-term objective of returning non-GAAP gross margins to around 40% as mix shifts and efficiencies improve. He also said AOI expects to “approach” sustainable profitability on a non-GAAP basis beginning in the second quarter.

Non-GAAP operating expenses were $51.4 million, or 34% of revenue, within the company’s expected $50 million to $57 million range. Non-GAAP operating loss was $7.3 million. GAAP net loss was $14.3 million, or $0.19 per basic share, while non-GAAP net loss was $4.9 million, or $0.07 per share. Murry noted first-quarter revenue was net of $1.0 million of contra revenue tied to accounting for customer warrants.

AOI ended the quarter with $449.4 million in cash, cash equivalents, short-term investments, and restricted cash, up from $216.0 million at the end of Q4 2025. Inventory was $206.2 million, up from $183.1 million, driven primarily by higher raw materials and work-in-progress. The company made $68.7 million in capital investments during the quarter, mainly for capacity expansion for 400G, 800G, and 1.6T products, and Murry said quarterly capital expenditures are expected to be above Q1 levels for the remainder of the year. He said AOI expects to finance investments with a combination of cash, operating cash flow, some equity sales, and additional debt.

For the second quarter, AOI guided revenue to $180 million to $198 million, with non-GAAP gross margin of 29% to 30%. Non-GAAP net income is expected to range from a loss of $2.5 million to income of $2.8 million, with non-GAAP EPS between a $0.03 loss and $0.03 of earnings, based on approximately 80.7 million weighted average basic shares.

Looking to the full year, Lin said AOI now believes 2026 revenue will exceed $1.1 billion and expects more than $140 million in non-GAAP operating income. Murry said the revenue outlook is limited by production capacity and supply chain, “not market demand,” and that the company expects acceleration in the second half as new capacity comes online and qualifications are completed.

About Applied Optoelectronics NASDAQ: AAOI

Applied Optoelectronics, Inc develops and manufactures high-speed fiber-optic networking products designed to support the growing bandwidth demands of data centers, telecommunications carriers and internet content providers. The company's core offerings include pluggable optical transceiver modules, transponders and optical components that enable data transmission at rates ranging from 1G to 400G. These products are used to facilitate long-haul, metro and intra-data center connectivity, addressing the need for scalable, low-latency and energy-efficient solutions in modern network infrastructures.

The company's product portfolio spans small-form factor pluggable modules such as SFP+, QSFP+ and QSFP28 units, as well as more advanced form factors like CFP2 and OSFP for ultra-high-speed applications.

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