Applied Optoelectronics (AAOI.US) Q2 conference call: AI-related demand remains strong, production capacity and supply of key devices are the main constraints to short-term growth

The Zhitong Finance App learned that the American optical communication technology company Applied Optoelectronics (AAOI.US) announced strong results for the second quarter of 2026. In an earnings call, the company's management positioned the second quarter as an important turning point — the company regained non-GAAP profitability, driven by record revenue growth. Management said demand for AI infrastructure remains strong. At the same time, the company has repeatedly emphasized that demand for 800G and the upcoming 1.6T products in particular is exceeding its current production capacity. The third quarter results guide shows that the company expects a significant increase in revenue and profit.

The future market's focus on Applied Optoelectronics will focus on: the speed of launch of new production capacity in Texas; tight supply of key components such as DSP/TIA; other material supply challenges; and short-term pressure on the 100G business due to insufficient supply of customer switches. Overall, Applied OptoElectronics' current growth logic still revolves around AI data center demand, but the company's future growth rate will depend on whether it can break through production capacity and supply chain bottlenecks.

The following is related to the Applied Optoelectronics' second quarter 2026 earnings call.

Management Views

Dr. Lin Thomson, founder, chairman, president and CEO of Applied Optoelectronics, said, “We achieved our fifth straight quarter of record revenue and reached a significant milestone this quarter—re-achieving non-GAAP profitability.” “In the short term, our revenue growth was almost entirely limited by production capacity and the supply of critical components,” he added.

Lin Thomson emphasized the acceleration in demand for next-generation products and the downward implementation of production capacity. He said, “In the second quarter, we saw a strong rise in mass production of 800G products, which more than doubled from month to month.” At the same time, he said, “By mid-2027, market forecast demand will continue to exceed our production capacity.”

Chief Financial Officer and Chief Strategy Officer Dr. Stephen Murray said that in the second quarter, the company promoted implementation around three priorities, “expanding the scale of next-generation data center products; diversifying the revenue base; and strengthening operational execution to increase profit margins and prepare for long-term profits.”

Murray updated the development of 800G and 1.6T products. He said, “We expect 800G product revenue to grow nearly fivefold in the third quarter. At the same time, we expect to complete full customer certification of the first 1.6 terabit product in the next few weeks, and begin shipping 1.6 terabit products later in the quarter.”

Financial performance

Applied Optoelectronics had second-quarter revenue of $191.9 million, non-GAAP gross margin of 29.8%, and indicated non-GAAP net profit of $5.5 million (non-GAAP earnings per share of $0.06). Balance sheet and financing updates include: total cash balance of US$508.8 million; inventory of US$278.8 million.

Murray detailed the revenue structure for the second quarter: “56% of revenue comes from data center products, and 42% of revenue comes from CATV products.” He said the CATV business achieved “record CATV revenue of US$80.6 million.”

Regarding customer concentration, Murray said, “We have three customers contributing more than 10% of our revenue... One customer contributed 42% of total revenue; the other two contributed 26% and 24% of revenue, respectively.”

Regarding costs and one-time expenses, Murray said non-GAAP operating expenses of $67.6 million were “higher than anticipated, mainly due to increased transportation costs and higher-than-expected R&D expenses.” However, he added, “We do not expect additional transportation costs to occur again in the third quarter and subsequent quarters.”

Murray also said, “Up to now, we have raised $538.8 million through the new (ATM) share issuance program.” “Total capital investment in the second quarter reached US$565.5 million, including US$280 million in advance equipment payments.”

Performance outlook

Management expects third-quarter revenue to be between $255 million and $290 million; third-quarter non-GAAP earnings per share (EPS) of $0.11 to $0.26; and non-GAAP gross margin of 29% to 30.5%.

Murray reiterated its full-year performance expectations: “We expect revenue to reach approximately $1.1 billion in 2026.” “This level of revenue is limited by production capacity and supply chain rather than market demand,” he emphasized.

Lin Thomson pointed out that changes in product structure in the short term will be affected by the decline in 100G products. “The 100G business will be reduced by 20 million to 25 million US dollars,” he said. But at the same time, it was emphasized that “the growth mainly comes from 800G.” He called the downturn in the 100G business only a “short-term impact.”

Q&A session (Q&A)

When asked about a possible ban on Chinese optical module transceivers in the US. Murray responded, “It's still too early to tell.” But he added that Applied Optoelectronics has a local production layout in the US, “increasing our appeal.” Lin Thomson said that customer demand for American manufacturers is more positive: “Customers will be more willing to give us more share... especially for American manufacturers.”

When asked about preparations for 800G product expansion, Murray said, “If we can produce more products, we can ship more now.” He explained that the company's production capacity is increasing from “about 200,000 pieces per month” to “reaching about 650,000 pieces per month by the end of this year.”

When asked about the 1.6T order delivery time mentioned earlier, Murray said, “Delivery will begin very late in the third quarter and gradually increase in the fourth quarter.” “Most of these products should be delivered in the fourth quarter.”

When asked about the risks of laser supply in China, Lin Thomson said that the CPO laser market will require future production capacity “8 to 10 times larger than the current scale.” He added: “I don't think there will be any impact because the scale of demand far exceeds current global production capacity.”

When asked about substrate supply restrictions, Murray answered, “We have secured supply for next year.” Lin Thomson said, “The company has two European suppliers, two Japanese suppliers, and three Chinese suppliers.”

When asked about the challenges of climbing production capacity and gross margin trends, Lin Thomson said, “DSP and TIA are key limiting factors.” Regarding profit margins, he said, “I think it's probably around 32% or 33%.” At the same time, he emphasized, “1.6T is a high-margin product.”

Market sentiment analysis

The analyst's overall tone was slightly negative, focusing mainly on supply chain bottlenecks, production capacity climbing times, and competition and regulatory risks associated with China. Management's attitude is slightly positive, but at the same time emphasizes capacity and supply restrictions, and has emphasized many times that “short-term revenue is almost entirely limited by production capacity and supply of key components” and “we definitely don't want to make excessive promises.”

Compared to the previous quarter, management's confidence in strong market demand remained the same, but analysts paid more attention to the Chinese market and short-term supply restrictions during the Q&A session. Lin Thomson's repeated emphasis on the expression “I don't want excessive promises” was also reflected in the Q&A session.

Risks and concerns

Supply restrictions remain a core issue. Lin Thomson mentioned “supply of key components” and “DSP and TIA in 800G and 1.6T products.” The company stated that demand for 100G products was affected by customer switch supply restrictions. Murray said a customer “was unable to obtain a sufficient number of 100G switches,” and the problem was “related to a shortage of memory.”

Tariff uncertainty is also a risk factor. “The direct tariff impact is $1.9 million,” the company said. Murray said the company received a refund of about $5.7 million, but the company is still “evaluating the new tariff policy.”