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On Friday, B.Riley analysts adjusted their stance on Applied Optoelectronics (NASDAQ:AAOI), upgrading the stock rating from Sell to Neutral and setting a price target of $13.00. The revision comes after a notable decline in the company’s shares year-to-date, which have dropped 56% compared to the Nasdaq’s 6% decrease. Currently trading at $15.55, the stock sits within a wide analyst target range of $13 to $41. According to InvestingPro data, the stock has fallen nearly 29% in just the past week, with technical indicators suggesting oversold conditions.
The analysts’ concerns regarding Applied Optoelectronics remain unchanged, including doubts about the sustainability of CATV strength, potential decay in 400G demand as the industry moves from Hopper to Blackwell, and the uncertainty surrounding the ramp-up of 800G since it has not yet been qualified by any hyperscalers. Despite these issues, the analysts noted that Oracle (NYSE:ORCL) became a significant new customer in 2024, contributing 12% to the company’s revenue, while Microsoft (NASDAQ:MSFT) remains the top customer with 44% of revenue. InvestingPro’s analysis indicates a WEAK overall financial health score, with the company currently burning through cash rapidly - just two of the 14+ insights available to Pro subscribers.
The analysts believe that the company’s ability to maintain a quarterly revenue of approximately $100 million could be supported by Microsoft and possibly another hyperscaler customer, even if CATV sales slow down at some point in 2025. With current revenue at $249.37 million and analysts forecasting 114% growth for FY2025, Applied Optoelectronics’ stock is currently trading at around 2 times revenue, which the analysts do not consider excessively expensive. This assessment has led to their decision to upgrade the stock from Sell to Neutral. For deeper insights into AAOI’s valuation and growth prospects, access the comprehensive Pro Research Report, available exclusively on InvestingPro.
In other recent news, Applied Optoelectronics reported its financial results for the fourth quarter of 2024, aligning with analysts’ expectations. The company recorded a non-GAAP loss per share of $0.02 and revenue of $100.3 million, marking a 66% year-over-year increase. This growth was primarily driven by strong demand in the data center and CATV markets. Additionally, Applied Optoelectronics announced an Equity Distribution Agreement with Raymond (NSE:RYMD) James & Associates, allowing the sale of common stock shares worth up to $100 million. Raymond James adjusted its price target for the company to $31.00 from $36.00, maintaining an Outperform rating despite mixed financial results. The company is planning significant capital investments to expand production capacity for high-demand transceivers, including a projected $120 million to $150 million in 2025. These developments are part of Applied Optoelectronics’ strategy to meet anticipated market demand, especially in the 800G and 1.6T segments. The company’s strategic partnerships with major players like Microsoft and Amazon (NASDAQ:AMZN) further underscore its role in the tech sector.
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