Why Investors Were Piling Into Applied Optoelectronics Stock This Week

Applied Optoelectronics (NASDAQ: AAOI) stock was the beneficiary of an analyst's price target raise over the course of the week, so it was little wonder the shares were doing well. According to data compiled by S&P Global Market Intelligence, they were trading more than 18% higher week to date as of very early Friday morning.

22% upside potential, believes pundit

Mike Genovese of Rosenblatt upped his fair value assessment on Applied stock to $34 per share from his previous level of $30. In doing so, he maintained his existing buy recommendation. At the new price target, Genovese is predicting the stock will appreciate by more than 22% over its current price.

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According to reports, the analyst is confident that the company will continue to grow key fundamentals, even though he expressed doubt it would hit the consensus revenue estimate of $120 million for its third quarter. He feels that 2026 in general will be a better year for Applied, as he envisions the company's gross and operating margins will come in better than generally expected.

Genovese's latest take on the stock came barely one week after Applied delivered some encouraging news about its financing. Last Wednesday after market close, the company divulged in a regulatory filing that it had secured a one-year credit facility with China Construction Bank for 96.8 million yuan ($13.7 million), which is to be used to retire outstanding indebtedness.

Real potential from artificial intelligence

Applied is a busy supplier of optical components to data centers, which as a group is a hot area for growth just now thanks to the explosion of artificial intelligence (AI) solutions. Given that, I wouldn't be surprised if the current revenue expectations for the company are surpassed. This stock might just be a fine, somewhat sideways, play on the AI revolution.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.