Michael Sikand: Why $AAOI Is Just Getting Started

Um, I want to talk a little bit about AOI, uh, because they reported earnings and then just the Phutonix as a whole. I still feel like 99% of people don't know what phutonics is. Um, if I had to guess, uh, they probably don't exactly like memory, I think, is a little bit easier for people to understand as a concept. I'd be curious for you to go a little bit into fatonics and then also, you know, just a breakdown of the AOI earnings and where obviously you're clearly bullish on them. They're up 30% in just a week and you're still bullish on them. where you think this company is going to continue to go as well as the sector as a whole. >> Yeah, I mean I wouldn't it's really not that complicated, right? Like light moves data a lot faster than copper. Um fiber optics, you've heard about it for years through your home internet. Like that's why your home internet is probably a lot faster than it was. Um you know, light is like imagine you're copper is like you're rolling a a bowling ball down, you know, the hallway and then it'll reach the door, right? But with a flashlight, you instantly shine the flashlight and boom, >> flashlight's at the other end of the the hallway, right? Um there's not enough silicon photonics technology in the world to meet the demand for data centers. Uh so there's a bottleneck. Um >> is the b you know it's on par with memory. I think you know there's like a lot of photonics, a lot of memory bulls. Some people are really excited about both. I'd say I'm in that camp. Um but uh there's just not enough of it. uh you know there's not enough lasers, right, to functionally build like uh uh these uh uh uh optical networking systems. Uh there's not enough lasers to flash that light to communicate the data like faster inside that that wire. So companies like AOI are catching a bid. Um you know, we've been in AOI since $50 and uh on autopilot, which has been one of our best trades and has been, you know, an incredible for our performance. Now, you know, it's been up to a 4x. It's now something like a two and a half at whatever price it is today. But again, it's had a 100% reversal or something crazy. AOI is very controversial because it has a much lower market cap than its peers in momentum and coherent. Uh those businesses are much farther along. They have more capacity. They've in two billion they they've already done $2 billion supply deals with Nvidia. Um, AOI is more asymmetrical because it has a smaller market cap, but it has the pieces and the underlying IP and and team and and history to be uh a laser producer and transceiver producer. Light doesn't make transceivers, but to be on par with those big photonic heavy weights. [snorts] >> Um, now they're expanding significantly. They're investing a lot in manufacturing and they're trying to accomplish this like Michael Jordanesque ramp, right? Which is like, okay, we're going to go from 500 million in annual revenue to over a billion and then to 5 billion in and a run rate. So 2027 run rate H2, they want to be doing something like in the high millions of dollars of revenue. Okay. On top of this, AOI is like the Intel thesis kind of as well for optics because they're domestic manufacturer of transceivers and uh the the government is now thinking of banning transceivers from China. As for the earnings call, everything seems to be on target. Um based on their original projections, they had a slight beat. Um wasn't really that material to be honest. The call wasn't anything too crazy other than that, yeah, there were some good nuggets. The CEO said they might hit 500 million in revenue in Q4 and that was significantly above the highest analyst estimate before the call. >> So, I mean, if they can pull this off, I mean, this is a stock that can be significantly more valuable. >> Um, but you have this asymmetry because a lot of people don't think that they can pull it off and the stock has a pretty negative history. My view on it is I mean this is a company that's been around since I think the 90s like Dr. Lynn it's founder le um he's been working and doing his PhD research on lasers and he just wanted to emphasize on the call like we're not just a transceiver maker trans and and transceivers are what comm what what uh translates light uh electricity into light and vice versa. So these servers can communicate with one another. That's why they're in such high demand because they're part of this whole optical uh uh all these data centers getting re rejiggered to to be faster and move data quicker to new standards. Um so yeah, everything seems to be on track. It's just a it's just a controversial trade, a very high beta trade. It's you certainly takes some big nuts to hold it. I'm amazed by how many retail investors are in this trade. This is one of the most popular stocks ever. Like I make an Instagram post on this and it goes viral. like it it's reached like the both the the super deep alpha retail traders and like the everyday people. It's kind of wild. >> Think you've helped popularize it for sure as well as part of that. I was showing people some of those data numbers as you were talking and certainly revenue has ramped. Revenue back in 2024 uh Q2 that year was 43 million. And now you look at Q2 and 2026 which they just reported and that's 191 million. So that is, you know, significant increase. But yeah, to go from there to 500 million potentially um in just six months from now is a massive massive jump and it makes you feel great about getting in on a stock that you know isn't necessarily reflecting that like has had such a pullback like you talked about. The pullback was pretty massive on this one. We went from uh 230 bucks all the way back down to 75. >> Um and then from there we've jumped from 75 to 133. So >> madness. >> Yeah. Actual madness. I mean that is a 67% draw down in just 2 and 1/2 months that it went through only to then go up literally I mean it's down a little bit now today but 80% in 2 weeks um on this. So if anybody you know was able to add to be honest I've seen a lot of these stocks as well. I know you're not on the technical side but if you add it on the 200 day this was a great one um just adding on the 200 SMA Nebia had the most perfect bounce I've ever seen off of a 200 SMA um as well. So, I encourage people, you know, you can put the kind of two and two together uh with a lot of these pieces, too. And then in terms of the the finances, you know, they're an interesting one. Always love to see the growing revenue. They're obviously spending a ton. They spend more and more and more each year on R&D, on SGNA. Um this year they're going to spend over 100 million for the first time ever on R&D. Uh they're going to spend um over 130 million on SGNA within these pieces. And so obviously not not profitable yet within these items, but they're investing heavily into the company. >> Um, and what's nice is while they are spending more, their revenue is significantly increasing faster than their spend. 100%. They're also benefiting from like cable TV. So that's the division of their business, this like fiber optics and upgrades. There's a structural cycle going on there too to make home internet faster um for the age of AI cuz it's like necessary to like you know do for anyone to like be doing inference at home like a lot of devices and all that stuff. So I mean yeah it's structural like optics is is viewed as more structural than memory um because uh mainly mainly because uh it's just it's just a different product like there's more differentiation >> but with AOI they're investing a ton to build that onshore American made in USA optical capacity. So that's the thesis. This is like a USA made in USA play. And then you have this Chinese potential transceiver ban and AOI is in great position. Most transceivers like the the big chunk of of of transceivers are made in China. So if this becomes a there's like a ban on that like AOI, I mean they're going to be they're building the capacity to be the largest transceiver maker in the United States and they're vertically integrated because they make the laser source as well. So that's why it's just an interesting stock. Like it's a really really interesting stock for like people who are trying to chase like an asymmetrical setup that's super high risk high reward that has like a near near-term catalyst like you know you want to buy like there's earnings right now for Rocket Lab and AS like those businesses like I have I have conviction in those businesses long term but like you're not you may not see like some kind of insane like near-term ramp right um I feel like a business like AOI is is is kind of in that in that fits that