Applied Optoelectronics (NASDAQ:AAOI) reported record second-quarter revenue and a return to non-GAAP profitability as demand for data center networking products and CATV equipment continued to grow. Management said near-term sales remain constrained primarily by production capacity and the availability of key components rather than customer demand.
Revenue for the second quarter of 2026 reached $191.9 million, up 86% from a year earlier and 27% sequentially. The result marked the company’s fifth consecutive quarter of record revenue and fell within its guidance range of $180 million to $198 million.
“Demand to support next generation AI infrastructure remains so robust that our near-term revenue is bounded almost entirely by production capacity and key component availability,” Founder, Chairman and Chief Executive Officer Thompson Lin said during the company’s earnings call.
Data Center Growth Led by 400G and 800G Products
Data center revenue totaled $107.7 million in the second quarter, rising 140.4% year over year and 32.3% from the prior quarter. The segment accounted for 56% of total company revenue.
Sales of 400G products reached $48.4 million, or 45% of data center revenue, increasing more than fourfold from a year earlier and 27.4% sequentially. Revenue from 800G products was $12.8 million, representing 11.9% of data center revenue. The company said 800G revenue increased more than tenfold year over year and more than doubled sequentially.
Chief Financial Officer and Chief Strategy Officer Stefan Murry said Applied Optoelectronics expects 800G revenue to rise by nearly five times sequentially in the third quarter, subject to production capacity and component supply. The company also expects to begin shipping its first 1.6-terabit transceiver product later in the third quarter following customer qualification.
Management said it expects one long-term hyperscale customer to return as a customer representing more than 10% of revenue in the third quarter as shipments of 800G and 1.6-terabit products increase. During the question-and-answer session, executives said the company had more than $200 million in 1.6-terabit orders and expected more than $70 million of 1.6-terabit revenue in the fourth quarter, with a larger ramp anticipated in 2027.
The company expects a temporary decline in 100G revenue during the third quarter because one customer has been unable to obtain enough 100G switches to support its initial forecast. Management attributed the switch shortage to memory supply constraints and said it expects the weakness to persist until memory availability improves.
Capacity Expansion Remains Central to Strategy
Applied Optoelectronics is expanding manufacturing capacity for 800G and 1.6-terabit transceivers in Texas. Its manufacturing footprint in the greater Houston area now exceeds 1.6 million square feet across properties in various stages of development, according to management.
The company expects initial production at a 210,000-square-foot facility near its Sugar Land headquarters to begin late in the third quarter. The facility will be dedicated to 800G and 1.6-terabit transceivers, while shifting existing transceiver production out of the headquarters facility is expected to create room for additional indium phosphide capacity.
Management said current manufacturing capacity is approaching 200,000 units per month for 800G and 1.6-terabit products, up from nearly 100,000 units per month at the end of the first quarter. The company expects capacity to exceed 650,000 units per month by year-end and 930,000 units per month by the end of 2027, with more than half of the latter output expected to come from Texas.
Lin and Murry said the company’s in-house laser production is an important advantage as the industry faces supply constraints. They noted that the company has secured substrate supply into next year, while component availability for digital signal processors and transimpedance amplifiers remains a major challenge for higher-speed transceiver production.
CATV Revenue Sets Another Record
CATV revenue rose to a record $80.6 million, up 43.8% year over year and 20.6% sequentially. The segment represented 42% of total revenue. The company said it shipped a significant quantity of 1.8 GHz amplifiers to its largest CATV customer and continued to gain traction with newer multiple-system-operator customers.
During the quarter, Applied Optoelectronics announced that Mediacom selected it as a primary vendor for DOCSIS 4.0 network upgrades using the company’s 1.8 GHz Quantum Bandwidth smart amplifiers and software solutions.
For the third quarter, the company forecast CATV revenue of $100 million to $110 million and reiterated its expectation to generate more than $325 million annually from the CATV business over the longer term.
Third-Quarter Outlook and Investment Plans
Applied Optoelectronics forecast third-quarter revenue of $255 million to $290 million, which would represent 130% year-over-year growth at the midpoint. It expects non-GAAP gross margin of 29% to 30.5%, non-GAAP net income of $10.1 million to $24 million, and non-GAAP earnings per share of $0.11 to $0.26 based on approximately 92.8 million diluted shares.
The company maintained its expectation for approximately $1.1 billion in full-year 2026 revenue, saying the forecast is limited by manufacturing capacity and supply-chain availability rather than demand.
Applied Optoelectronics ended the quarter with $508.8 million in cash equivalents, short-term investments and restricted cash, compared with $449.4 million at the end of the first quarter. Inventory increased to $278.8 million from $206.2 million as the company accumulated raw materials to support capacity expansion.
The company made $565.5 million in capital investments during the quarter, including $280 million in equipment prepayments. It said spending was primarily directed toward manufacturing capacity for 400G, 800G and 1.6-terabit products, and that capital expenditure intensity is expected to rise in the second half of 2026.
About Applied Optoelectronics (NASDAQ:AAOI)
Applied Optoelectronics, Inc develops and manufactures high-speed fiber-optic networking products designed to support the growing bandwidth demands of data centers, telecommunications carriers and internet content providers. The company’s core offerings include pluggable optical transceiver modules, transponders and optical components that enable data transmission at rates ranging from 1G to 400G. These products are used to facilitate long-haul, metro and intra-data center connectivity, addressing the need for scalable, low-latency and energy-efficient solutions in modern network infrastructures.
The company’s product portfolio spans small-form factor pluggable modules such as SFP+, QSFP+ and QSFP28 units, as well as more advanced form factors like CFP2 and OSFP for ultra-high-speed applications.
