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Applied Optoelectronics (AAOI) Soars to New All-Time High

Shares of Applied Optoelectronics AAOI soared to a new all-time high of $97.75 during morning trading hours on Monday. The scorching hot fiber-optics equipment maker, which is currently a Zacks Rank #1 (Strong Buy), has now gained more than 300% year-to-date.

Today’s run comes on the back of strong volume, with more than 5.8 million shares trading hands through early afternoon trading hours. This activity comes in well above AAOI’s average volume of 3.5 million.

On Monday morning, a new analyst note from Raymond Jones fiber-optic analyst Simon Leopold snapped back at a bearish Barron’s report that questioned whether Applied Opto could effectively compete against the likes of MACOM MTSI.

“With 55% of Applied Optoelectronics’ shares short, it should not come as a surprise that bear arguments exist ranging from nonsense, to overblown worry and misunderstanding the industry to justifiable risks,” Leopold wrote.

“Data center (mostly web scale operators today), demand for optical transceivers should grow significantly, and we see this as a rising tide that will float many boats… We believe Applied Optoelectronics will lead the market but we have always seen room for others.”

Leopold touches on exactly what has caused AAOI to skyrocket over the past year: a rising demand for the company’s products from those who are building cloud-based data centers. Our current consensus estimate calls for Applied Optoelectronics to post revenue growth of 76% this year, primarily because of rising sales to customers like Amazon AMZN, Facebook FB, and Microsoft MSFT.

These tech giants, along with Alphabet Inc. GOOGL, are the leading architects of what is sometimes called Web 2.0, where massive amounts of high-bandwidth content—like user-generated video, VR, an AI-related activity—will require more advanced optical equipment.

AAOI was most recently added to the Zacks Rank #1 (Strong Buy) list on July 14, and since then, the stock has moved nearly 25% higher. On top of its strong Zacks Rank, which it earned thanks to three positive earnings estimate revisions, the company is also sporting an “A” grade for Growth and a “B” grade for Momentum in our Style Scores system.

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