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On Friday, Rosenblatt Securities analyst Mike Genovese reaffirmed a Buy rating and a price target of $36.00 for Applied Optoelectronics (NASDAQ:AAOI) shares. The firm’s positive stance is supported by a significant development involving a warrant granted to Amazon (NASDAQ:AMZN) for the potential purchase of up to 7.95 million shares of AAOI at an exercise price of $23.70 per share. This development comes at a crucial time for the optical components sector, where key players like Coherent (NYSE:COHR) have seen significant market movements. According to InvestingPro data, Coherent’s stock has experienced notable volatility, with a beta of 1.69 over the past five years.
Applied Optoelectronics disclosed the arrangement with Amazon after the market closed on Thursday. As of March 13, 2025, 1.32 million warrant shares have already vested. The remaining shares will vest progressively as Amazon continues to make purchases from the company. For Amazon to fully vest all 7.95 million warrant shares, it must make an aggregate of $4 billion in purchases over the next decade, prior to the expiration of the warrant on March 13, 2035.
Genovese commented on the deal, highlighting its significance for Applied Optoelectronics. He pointed out that skeptics can no longer claim that the company lacks major customers for its 400G and 800+G transceiver products or that it has been slow to enter the market. This deal is seen as confirmation that AAOI will have a meaningful role in the 800+G transceiver market for AI applications.
The analyst believes that Amazon plans to primarily purchase full transceivers that AAOI manufactures at its automated factory in Taiwan. Amazon is also expected to buy from AAOI’s new automated U.S. manufacturing facility, currently being developed with 800+G capacity.
A separate warrant announcement from Fabrinet (NYSE:FN, Buy) regarding a deal with Amazon to produce custom ASICs is not seen as directly competing with AAOI’s transceiver business. According to Genovese, Amazon’s biggest transceiver supplier has been Innolight, and he anticipates that AAOI will take market share from Innolight. Coherent (COHR) holds approximately 20% of Amazon’s transceiver market share, which is not expected to significantly change. With an EBITDA of $911 million in the last twelve months and revenue growth of 14.6%, Coherent maintains a strong market position despite recent stock volatility. InvestingPro analysis reveals 16 analysts have revised their earnings upwards for the upcoming period, suggesting positive momentum. Lumentum is also projected to increase its share of Amazon’s transceiver business, although the analyst does not foresee it offering customer warrants like AAOI.Want deeper insights? InvestingPro subscribers have access to over 30 additional financial metrics and exclusive analysis for Coherent, including detailed Fair Value estimates and comprehensive Pro Research Reports available for 1,400+ top US stocks.
In other recent news, Coherent Corp. reported strong second-quarter earnings, with adjusted earnings per share reaching $0.95, significantly surpassing analyst estimates of $0.69. The company’s revenue for the quarter was $1.44 billion, exceeding the consensus forecast of $1.37 billion and showing a 27% increase year-over-year. Coherent’s performance was bolstered by high demand in AI-related data center applications and growth in its telecom business. The company also improved its gross and operating margins, with a GAAP gross margin expanding to 35.5% and a non-GAAP gross margin increasing to 38.2%.
Jefferies initiated coverage on Coherent with a Buy rating and a $110 price target, citing the company’s strong position in the 400G transceiver market and potential for improved profitability. Needham also raised its price target for Coherent to $125 while maintaining a Buy rating, following Coherent’s better-than-expected revenue and earnings performance. Rosenblatt Securities increased its price target to $115, maintaining a Neutral rating, and noted the company’s solid quarterly results as a positive factor. Additionally, Coherent launched the WaveAnalyzer 1500B, an advanced optical spectrum analyzer, which is expected to enhance transceiver testing capabilities and streamline production processes.
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