Jason's Chips
Buy-Side AI & Semiconductor Investor
Applied Optoelectronics still merits a positive view, though it is a buyer of lasers rather than an external seller like Lumentum. Companies sell lasers when laser capacity exceeds transceiver capacity and buy them in the reverse case. Per @BenBajarin's interview with an AWS networking engineer, optics demand faces a 20-30% supply gap, and Applied Optoelectronics' growing in-house lasers are a differentiator but also an execution risk. x.comÂ
Applied Optoelectronics could reach a $2B+ revenue run rate from co-packaged optics, since Lumentum's ELSFP average selling prices are $600+, per earnings-call commentary and a bottom-up bill-of-materials build. Management is less convincing than others think, but that possibility alone is enough. x.comÂ
Applied Optoelectronics' laser capacity could be worth much more if Marvell pays over $100B for Lumentum. That price would show how valuable laser capacity is and, in that scenario, AAOI could reach $200 within a quarter or two. The deal is only a rumor, and its price is unknown. x.comÂ
Applied Optoelectronics has a better chance than Coherent of delivering a 300-400 mW laser with tolerable RIN and linewidth. Its transceiver capacity ramp is also larger and is not gated by Sumitomo's 6-inch InP wafers. Long AAOI against short COHR is an unnecessarily dangerous pair trade idea. x.comÂ
Applied Optoelectronics is back in the junk bucket after dropping dilution news in Friday after-hours trading, a reminder of exactly who management is. Lumentum and Coherent are the calmer optical names to own instead. x.comÂ
Applied Optoelectronics still offers a lot of opportunity after falling 37% from its May 13 peak of $233.67 to around $147. It has posted record revenue for four straight quarters, though it is still losing money, with a 29.1% GAAP gross margin and a 21x sales valuation. The drop follows a 550%+ run over the past year, so the key question is whether it is a cooled-off pullback worth buying or an early bubble deflating. x.comÂ
Applied Optoelectronics might be the best opportunity right now amid a potential laser-supply bottleneck: AleaBitOfReddit reports that Lumentum's CEO said it was effectively sold out through nearly 2029, with hyperscaler demand visibility into 2030-31. That shortage could benefit AAOI. x.comÂ
Co-packaged optics standards could make finished transceiver modules smaller and more interchangeable as chip designers build optical engines inside their packages. That is another reason to avoid Lumentum, Coherent and Applied Optoelectronics and prefer Soitec. Lumentum and Coherent now earn a lot from finished modules, leaving them exposed if the architecture changes. x.comÂ
Lumentum's 109% year-on-year growth and sold-out capacity through 2029 make selling its AI optics exposure questionable. Bloomberg reported Marvell is in advanced talks to buy it; the appeal depends on the price, especially when holders of an $80 billion Lumentum would become holders of a $320 billion-plus Marvell growing 37%. x.comÂ
Applied Optoelectronics should trade above $150, in part because Lumentum's CEO says its optical components are sold out through early 2029 and it cannot meet roughly 70% of demand for some products through 2027. That industry signal strengthens the case for AAOI's expanding 800G/1.6T offerings after completion of its $600M ATM, with shares around $110. x.comÂ
Applied Optoelectronics is lagging as the market becomes more discerning between low-quality companies and high-quality ones with durable growth. @GavinSBaker said weeks ago the AI bottleneck trade was over, and that has played out in optics: Lumentum keeps climbing while weaker names like Applied Optoelectronics lag. x.com x.comÂ
Marvell risks paying a peak-scarcity price for Lumentum if optical supply catches up by 2028-30. The proposed ~$99B deal values Lumentum at roughly 20x guided annualized revenue and 58x estimated after-tax operating income, while Lumentum, Coherent and Chinese suppliers are adding laser capacity. The DSP-and-laser combination has strategic logic, but durable scarcity economics and Nvidia's response remain uncertain. x.comÂ
