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Actionable news in AAOI: Applied Optoelectronics, Inc.,

Apple Opto Plunges: Over-reaction, Say Bulls; Business Going Away, Say Bears

Shares of fiber-optic component maker Applied Optoelectronics (AAOI) are down $25.62, or 26%, at $72.37, extending last night’s losses, after the company beat its already heightened outlook for Q2, but forecast revenue this quarter that missed consensus by a wide-margin, saying it is dealing with a slowdown in purchases of its 40-gigabit optical transceivers by a single large customer.

The results and outlook have shifted no one in the bull-bear debate. Bears take it as confirmation the company is going to be permanently damaged by losing some business at Amazon (AMZN), its top customer (the other one being Microsoft (MSFT)); bulls see the sell-off as a big over-reaction, arguing what happened with the outlook is merely a “transition” for the company from one part to another. Notably, several price targets are being increased at the bulls today.

For the bears, the stock has gotten one downgrade this morning, that I can see, from Tim Savageaux of Northland Capital Markets, who cut his rating to Underperform from Market Perform, and cut his price target to $43 from $47, writing that the report confirms concerns he already had that the company was at risk because of one large customer, Amazon, and because it its reliant on “legacy” technology.

"We continue to believe the company faces a far more competitive market for 100G datacom transceivers than the 40G market and see risks beyond the 40/100G transition to both revenue and margins."

Hamed Khorsand with BWS Financial, who recently reiterated the bear thesis about the company’s business going away, takes the lower outlook as vindication:

Our thesis has been built on the expectation 40G would begin to decline and AAOI would not be able to sell enough 100G to make up the difference. This seems to be playing out even though AAOI was quick to note it is ramping 100G production. We do not believe that becomes relevant in the short-term since the growth AAOI was being valued for is disappearing.

There are a lot more bulls rushing to the company’s defense today than there are bears criticizing.

Mark Kelleher with D.A. Davidson reiterates a Buy rating, and raises his price target to $103 from $100, writing that newer products for 100G should lift its prospects in quarters to come:

With an integrated manufacturing capability and industry leading laser technology, the company is...