Guotai Haitong Securities released a research report stating that $Applied Optoelectronics (AAOI.US)$ performance met expectations, and capacity guidance has been revised upward again. Co-packaged optics (CPO) and near-packaged optics (NPO), as the core of vertically integrated (Scale up) optical interconnect technology, have officially entered the commercialization and implementation cycle, opening up entirely new incremental markets for the industry. The value weight of optical interconnects within AI computing clusters is expected to continue rising. 2026 is therefore seen as a crucial inflection point for the industry: existing mature products will achieve scaled-up volume based on their original application scenarios, while cutting-edge new products like CPO and NPO will simultaneously achieve mass production and deployment. The industry is poised for growth driven by these two parallel engines. It is recommended to focus on identifying investment opportunities in high-barrier niche segments and industry leaders.
As the most prominent core segment with high growth elasticity within AI computing infrastructure, the demand for optical interconnects will primarily rely on two key drivers for continued volume expansion from 2023 to 2025: horizontal scaling (Scale out) and transmission rate iteration. From a 2026 perspective, the horizontal scaling scenario is expected to maintain a high growth momentum. The current industry situation, characterized by concentrated capacity expansion by upstream manufacturers and leading enterprises securing long-term, large-scale orders, also fully validates the high certainty of medium-to-long-term demand. Simultaneously, Co-packaged optics (CPO) and near-packaged optics (NPO), as the core of vertically integrated (Scale up) optical interconnect technology, have officially entered the commercialization and implementation cycle, opening up entirely new incremental markets for the industry. The value weight of optical interconnects within AI computing clusters is expected to continue rising. 2026 is therefore seen as a crucial inflection point for the industry: existing mature products will achieve scaled-up volume based on their original application scenarios, while cutting-edge new products like CPO and NPO will simultaneously achieve mass production and deployment. The industry is poised for growth driven by these two parallel engines. It is recommended to focus on identifying investment opportunities in high-barrier niche segments and industry leaders.
The upward trend in the value share of optical interconnects per cluster is a long-term and irreversible trend. The core driver is not product price increases, but rather the continuous iteration of bandwidth and the continuous broadening of computing application scenarios. This indicates that the industry's growth possesses long-term sustainability. We maintain three investment layout approaches: First, prioritize allocating to core industry leaders with profound technological barriers and strong performance certainty, represented by Innolight and its supporting industry chain. Second, seize the opportunities presented by the domestic substitution of upstream core raw materials. Focus on the growth potential of domestic manufacturers in segments such as optical chips, mSAP (modified semi-additive process), optical fibers, isolators, and MPO connectors, as their production capacity and technological capabilities continue to expand. Third, invest in new technologies and application segments that are in the industrialization cycle from zero to ten, covering areas like NPO/CPO co-packaged optics and Data Center Interconnect (DCI).
AAOI's performance met expectations, and capacity guidance was revised upward again. For Q2 2026, revenue reached $191.9 million (up 27.0% quarter-over-quarter, up 86.4% year-over-year; previous quarter's guidance was $180-198 million). GAAP gross margin was 27.7%, and Non-GAAP gross margin was 29.8% (previous quarter's guidance was 29%–30%). For Q3 2026, total revenue guidance is $255–290 million (midpoint $273 million), representing growth of 32.9% to 51.1%. The Data Center business will see large-scale volume ramp-up of 800G products. The CATV business is expected to show steady growth ($75-80 million). The Telecom & Other business segment will maintain a low proportion. Non-GAAP gross margin guidance is 29.0% - 30.5%, with a midpoint of 29.75%. Non-GAAP net profit is projected to be between $10.1 million and $24.0 million. By mid-2027, monthly revenue from 100G/400G optical modules is expected to exceed $90 million, monthly revenue from 800G products to exceed $217 million, and monthly revenue from 1.6T products to exceed $164 million. The overall Data Center business is expected to reach $471 million per month (originally expected in Q1 guidance was $378 million per month; after the upward revision, the annualized output value reaches $5.688 billion).
Industry holdings as a proportion have increased, and valuations have reached the upper half of the historical range, reflecting the upward revision of sector expectations driven by the AI industry chain. AI is driving network upgrades, with strong overseas demand, allowing core domestic enterprises to fully benefit from the global infrastructure wave. A new generation of computing infrastructure construction is commencing domestically, and the fully domestic supply chain is entering a new cycle. 'New Connectivity' is also expected to reach a development inflection point in 2026, presenting more investment opportunities. Driving Network Upgrades – AI's large model training and applications are increasing demands on communication capabilities, accelerating the advancement of network innovation and new technology applications.
