$AAOI · Invest with Henry · 2026-11-02

Okay, let's move on to our second stock, Applied Optoelectronics , with the ticker symbol AAOI. It is a company specializing in fiber optic networks. The company designs and manufactures equipment that allows for the transmission of enormous amounts of data at extremely high speeds over fiber optic networks.

Their products include lasers, optical components, and transceivers, and are used primarily in data centers, cable broadband networks , telecommunications networks, and fiber optic infrastructure for homes.

The easiest way to understand the nature of AAOI's work is that they work in the field of data transfer acceleration. This is becoming increasingly important , because artificial intelligence requires large amounts of data.

When companies like Microsoft build massive AI data centers containing thousands of graphics processing units (GPUs) that need to communicate constantly with each other, this is where AAOI comes into play.

Graphics processing units provide computing power, but they still need a super-fast network infrastructure to connect everything together. AAOI specifically works in the field of these data transfer operations.

Therefore, as AI teams grow in size and graphics processing units (GPUs) become more powerful, data centers need faster connections.

The sector has been moving from speeds of 100 gigabits and 400 gigabits towards 800 gigabits, and eventually 1.6 terabits. So, 800 simply means 800 gigabits per second, that is, the ability to transmit up to 800 billion bits of data per second.

AAOI manufactures optical and laser transceivers that help make these high-speed communications possible. Therefore, they do not build artificial intelligence models nor do they manufacture graphics processing units .

They provide a portion of the network infrastructure that allows these massive AI data centers to actually operate.

And this is where the AAOI story becomes really interesting. It may be difficult for me to pronounce the name AAOI, but the company is growing at an incredible pace. In the second quarter , AAOI generated revenues of approximately 192 million, an increase of 86% year-on-year.

Even more impressive is that the data center business generated nearly 108 million, a 140% year-on-year increase. Much of this growth comes from the move to faster 800 gigabits speeds, and then 1.6 optical connections.

AAOI's revenue from 800Gbps units more than doubled in the last quarter, and management says demand for its 800Gbps and 1.6Gbps products is expected to outpace its production capacity until mid-2027.

That's probably the most I like about this story. Their problem at the moment is not finding demand, but manufacturing enough products to meet that demand.

AAOI says it is approaching a production capacity of 200,000 units per month and expects to be able to produce around 650,000 units of the 800Gb and 1.6Gb categories per month by the end of 2026.

They are also significantly expanding their manufacturing in Texas, adding nearly 400,000 square feet of production capacity specifically to help scale up production of these next-generation optical products.

We are already seeing large consumers placing very large orders. Earlier this year, AAOI announced an order for a 1.6 product worth over 200 million from a long- term customer in the hyperband field.

They also announced large orders for their 800G product range.

Therefore, I want to open the data for AAOI Electronics now. I'll show you what happened during the last month, where the stock fell by approximately 30% . I lost $9,000 in a current financial position I own, which is a few buy options that I personally purchased, okay?

These options are now out of price range, which means they are no longer profitable because the stock price is lower than my execution price.

However, despite my loss in this position, I believe that this particular position is still a buying opportunity. What I'm looking forward to doing is using the average dollar cost and buying more of my LEAP options, because I think they will eventually become profitable, especially if AAOI stock manages to return to $100.

This could happen perhaps in the first or second quarter of 2027.

Don't forget how quickly stock prices can change . When stocks crash, they crash hard. And when stocks rise, they can rise just as quickly. So, in one month we dropped by 30%, and the same in three months, but on the one-year chart , the stock actually doubled, okay?

Therefore, this would be a highly volatile name, and by no means a key stable asset in my investment portfolio. This is closer to being a high-risk, high-reward deal that I am now looking at through the "LIB" option.

So, if I didn't have any position here, I would probably start with a "lip" position at an execution price of 80, which is what I currently have. This execution price of 80 expires until 2028.

It's a very long-term position for me. You can see the position I own here, dated January 21, 2028, with an execution price of 80. I have plenty of time, and this is not a position that I need to manage on a daily or weekly basis.

I do not day trade. I do not practice swing trading. Uncle Henry is here to teach you about continuous passive income and growth. The growth strategy I use is my own deep personal strategy.

This position here will not be considered technically "deep" because it is not within the price range. This would simply be a long-term buy option with an out-of-range execution price, because Applied Opto Electronics' stock price is at 70 and this execution price is 80, which is what I'm still interested in owning.