Applied Optoelectronics revenue surges 154% as AI optical demand outpaces supply

Applied Optoelectronics is racing to add 400,000 square feet of U.S. manufacturing capacity as AI-driven demand for high-speed optical transceivers outstrips supply through 2027.

Applied Optoelectronics' data center revenue more than doubled to $81.4 million in the first quarter as hyperscale customers rushed to deploy 800G and 1.6T optical transceivers for AI workloads.

"We expect revenues in the range of $180 million to $198 million for the second quarter," the company said in its earnings release, implying continued sequential growth from the first quarter.

The company is expanding its Texas manufacturing footprint to meet demand. U.S. facilities are expected to produce more than 650,000 units of 800G and 1.6T products per month by the end of 2026, with further expansion to more than 930,000 units monthly by the end of 2027. In July, Applied Optoelectronics began construction of two facilities in Pearland, Texas, adding nearly 400,000 square feet of manufacturing capacity.

The expansion comes as competition intensifies. Lumentum and Coherent have both secured multibillion-dollar partnerships with Nvidia, posing a threat to Applied Optoelectronics' market position in AI optical networking. Coherent announced a $2 billion equity investment from Nvidia in the third quarter of fiscal 2026, while Lumentum entered a multi-year agreement with a multibillion-dollar purchase commitment and a separate $2 billion Nvidia investment.

Lumentum, which competes directly with Applied Optoelectronics in AI optical networking, delivered record EML (electro-absorption modulated laser) shipments in its third fiscal quarter, with 200G EML revenues more than doubling sequentially. The company expects EML unit volumes to grow more than 50% by the December 2026 quarter. Lumentum's fourth-quarter fiscal 2026 revenue guidance of $960 million to $1.01 billion compares with Applied Optoelectronics' $180 million to $198 million range, highlighting the scale difference between the two competitors.

Lumentum has also acquired a fifth Indium Phosphide (InP) fab to expand production capacity, with its existing wafer fab in Japan fully allocated. The company's next growth wave could come from co-packaged optics (CPO), where ultra-high-power laser chips are on track for meaningful revenue generation by late 2026, supported by a multi-hundred-million-dollar purchase order.

Applied Optoelectronics' strategy centers on vertical integration and rapid capacity expansion. The company's vertically integrated laser manufacturing and CPO-ready external laser sources allow it to capture value across the optical networking stack. The company expects AI demand to exceed production capacity through 2027, according to its earnings commentary.

The broader optical networking market is seeing a surge in investment as AI infrastructure buildout accelerates. MaxLinear, another key supplier to AI data centers, reported a 136% year-over-year increase in infrastructure revenue in the first quarter of 2026, driven by its Keystone PAM4 DSP optical transceiver platform. MaxLinear raised its 2026 optical data center revenue expectations to $150 million to $170 million, reflecting strong customer orders.

For investors, the key question is whether Applied Optoelectronics can scale fast enough to capture the AI optical networking opportunity before larger rivals lock in hyperscale customers through Nvidia-backed partnerships. The company's Q2 revenue guidance of $180 million to $198 million implies sequential growth, but Lumentum's revenue run rate of nearly $4 billion annually suggests the competitive gap remains wide. Applied Optoelectronics' ability to deliver on its 930,000-unit monthly production target by 2027 will determine whether it can maintain share in a market where Nvidia's partnerships are reshaping the competitive dynamics.

This article is for informational purposes only and does not constitute investment advice.