TenQ

The Applied Optoelectronics story

Applied Optoelectronics makes optical networking and cable equipment, and its central question is whether expanding 800G production can turn strong demand into sustained profits and cash generation.

Applied Optoelectronics stock reportTenQ Score 7/36 · every chart and check from its filings
  • $75.57share price, last close
  • $6.4Bmarket value
  • 7/36TenQ Score checks passed

The story in brief

  • Demand accelerates. Revenue reached $191.9 million in the quarter to June 2026, its fifth consecutive quarterly record, as 800G shipments more than doubled sequentially.
  • Profit measures diverge. In the quarter to June 2026, non-GAAP net income reached $5.5 million, but the GAAP net loss widened to $22.8 million from $9.1 million in the quarter to June 2025.
  • Expansion consumes cash. Free cash flow was -$592 million over the last twelve months, leaving internal funding unproven despite $500 million in cash and short-term investments.

What drives the business

  • Applied Optoelectronics designs and manufactures networking products from laser chips to complete equipment, making all its laser chips in Sugar Land, Texas, and using its own lasers and subassemblies in most of its data center transceivers.
  • Cable television equipment accounted for 53.8% of revenue in 2025 and internet data centers for 42.9%, with Digicomm contributing 53.1% of total revenue and Microsoft contributing 28.8%.
  • The launch of Quantum Bandwidth in 2023 extended its cable business directly to network operators, while DOCSIS 4.0 upgrades and demand for faster connections in AI and cloud data centers drive its principal product transitions.
  • Strong demand for high-speed optics and adoption of 1.8 GHz cable products supported record revenue in the quarter to June 2026, while revenue over the last twelve months grew 61.8%, above its annual growth pace of 26.9% over the last three years.
  • Its production expansion includes industrial building leases signed with Hightower Phase I Owner in May 2026 and Hightower Phase II Owner in August 2026, alongside a factory lease signed by its Global Technology subsidiary with Ningbo Yiduofu Industrial in September 2026.

What the price assumes

The reverse DCF cannot measure an implied growth rate because free cash flow and operating earnings are both negative, so the price rests on future profits rather than an established positive cash flow base.

The $11.0 billion market value represents 18.5x sales against $596 million of revenue over the last twelve months, during which revenue grew 61.8% but the operating margin remained -11.3%.

TenQ's Value checks pass 0 of 6, with the sales multiple above its under 2.5x threshold and free cash flow yield of -5.4% below its above 3% requirement.

What could change the story

  • Reliance on Digicomm and Microsoft makes order reductions or slower customer deployments significant risks to both the cable and data center businesses.
  • The production ramp depends on manufacturing yields, costs and timely shipments, while GAAP gross margin fell to 27.7% in the quarter to June 2026 from 30.3% in the quarter to June 2025.
  • The return to non-GAAP profitability does not establish GAAP profitability, and TenQ's Quality checks pass 0 of 6.
  • Negative free cash flow leaves expansion dependent on available cash or external funding, and TenQ's self-funding check indicates 0.84 years of cash at the measured burn rate.
  • Share count rose 116.1% over three years, and the August 2026 Equity Distribution Agreement with Raymond James & Associates and Needham & Company permits further share issuance, creating additional dilution risk.

What to watch next

  • For the third quarter of 2026, management expects revenue of $255 million to $290 million, non-GAAP gross margin of 29% to 30.5%, and non-GAAP net income of $10.1 million to $24.0 million.
  • The next production updates will test management's expectation of reaching around 650,000 pieces of 800G and 1.6 Tb products per month by the end of 2026, compared with capacity approaching 200,000 units per month reported in August 2026.
  • GAAP margins, operating cash flow, capital spending and share issuance will show whether higher production is narrowing losses and reducing dependence on outside funding.

Sources

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