This AI Stock Is Down Over 50% — Is It the Best AI Stock to Buy Now?

You want to know what are the best stocks to buy right now? Now, this AI photonic stock just got absolutely smoked down 15% literally overnight on Monday, and that was on Dilution Fierce. Now, is this legit or a buying opportunity. The 52- week high on this stock was over $230. Now, it's trading closer to 100 bucks. Is it a buy now? Let's go. What's up, investing aliens? Happy to be back after two weeks in Hawaii with my family. Thanks for your patience. I want to first talk about this. I want to break down what's legitimate about this headline. But before I can do that, I need to explain to you what this company actually does. Applied opto electronics stock ticker is AOI. Think of it as a nervous system. Every time you ask AI a question, data has to move at insane speeds between racks, buildings, data centers. AOI builds the puzzle pieces, optical transceivers. They let the servers talk, communicate with light instead of copper. So, a photonix player. Now, of course, this company still does have legacy cable TV or CATV, but in my view, the growth story here, of course, is the AI data centerpiece, and they actually do it mostly vertically integrated, which is a strong positive longer term. In other words, they make a lot of the products themselves. They don't have to rely on thirdparty manufacturers as much as as some of the competitors do. And that's important later. But let's talk about this customer concentration part first. As you guys know, I keep it real and I'm going to give you both sides. I always look at strengths and weaknesses. The bear and bull case. If I were creating a bare case, I would talk about customer concentration. So filings show that the top 10 customers for applied opto electronics is 96.6% of 2025 revenue. Now, at first that's alarming and generally that's something that I would avoid. But you do have to think about how data centers work. Who's building data centers? There's only a handful of of hyperscalers that are going to be spending money on these suppliers. So, that's the first thing you have to realize. This is a very unique situation. I mean, think about it for a second. You're basically supplying whales. If you're thinking about data center, there's only a handful of whales that are actually buying these supplies from these smaller companies. You don't have a thousand customers. You have a few massive ones, a few whales. And when you look at AOI and their customers, you have Microsoft on that list, Oracle as well as Amazon. Microsoft historically has been a larger customer and they did do a recent order for the new technology that we'll talk about soon. So, I'm not really worried about concentration alone because it's the nature of the beast here, but I am worried about the execution more so. Now, with that said, it definitely is a red flag and it's something I want to bring to you right at the front of the video. I also want to address this quickly. So 10% we we actually got a 15% draw down because of this equity offering. So retail sentiment as you know sentiment is going to be 60 to 70% of short-term movement. That obviously goes bearish. Traders debate whether $600 million offering would dilute shares. Absolutely. It's going to dilute shares. How much? Well, about five and a half to six and a half percent if they sell the full $600 million. Now they've done this several times and companies that are in hyper growth, right? If they're in hyperrowth stage, it's not uncommon uncommon to see small cap companies like this dilute shareholders in order to grow. If you're a growth investor, you're very very aware of this and you've been involved with these before. But you also want to chalk it up as a risk because execution is going to matter. But here's where it gets really interesting and why I think it's okay to take a little bit of dilution. So the first thing on that five and a half to six% 6 and a half% dilution, but the stock sold off 15%. So, that was an overreaction. Of course, this is a high beta name. It's been all over the place. I mean, you've seen the stock go from $18.50, rip all the way to $233 and sell off to 76. And we did buy this in the7s in Discord stock trading right now at $113. And the question you have is, should I buy it right now? And what is the long-term bull case? And that's what I'm going to provide you, as well as potential prices of where the stock could be in the future if the stars align. We can see right now the stock is about a $9.64 billion market cap. That 52-week high was $233.67. The 52-E low $18.50. Massive beta. It is up 187% year-to date. And generally, I will avoid stocks like this that have gone on massive tears. It's up, 1457% in the past 5 years. So, have I lost my mind or is there more to the story? because I actually bought this stock in the community portfolio. But where it gets interesting is that 800G and 1.6T. These are going to be missionritical for data centers now and in the future. So essentially copper has been getting the job done, but it's hitting a wall. And so you're seeing photonics be a major player. You can't push the amount of data that AI needs over copper without burning insane power and hitting distance limits. And that's the problem is that power consumption it's a major it's a major bottleneck right now. We don't have enough power to power all the data centers. But on top of that the hardware the infrastructure is getting more powerful and more powerful and it basically need it needs bigger plumbing. So these hyperscalers the Microsofts the Oracles the Amazons the Google's driving a lightning fast shift here. They started with 100G then 400G and that's still selling but right now the demand has completely shifted to 800G and it's starting to move to 1.6T. In my view this is the literal bandwidth required to train and operate large language models in the future. We're still in early stages of this and it's going to require more and more data and better and better plumbing. So what is AOI's edge here? It's called LPO and that's linear pluggable optics. In my view, this is positioned really well for the long term because it uses about 50% less power than the alternative. In a data center where energy is the bottleneck, this is huge. So, with all that said, if 800G is what we need right now and 1.6T is the future, who's going to build these? And that, my friends, is where Sugarland Texas comes into play? To meet this demand, AOI is rapidly expanding its Houston area footprint with a brand new 210,000 square foot facility in Sugarland, Texas. And the timeline's lightning fast. It has been pushed back a little bit, but it's happening this year, 2026. They broke ground in February 2026, and management expects initial production by late Q3 of the same year. By mid 2027, this is where it gets really big, guys, for a long-term investor. The massive expansion is targeted to help push total production capacity for 800G and 1.6T to over 930,000 units per month. Now, it doesn't even seem possible. And there is a possibility that that doesn't happen, right? But if they actually reach 930,000 units per month, this company is going to look completely different in a couple of years. So, why does this Texas plant matter so much? By mid 2027, roughly 40% of the company's staggering 471 million per month, transceiver revenue capacity is expected to be US-based. In an era where global tech supply chains are incredibly fragile, having massive domestic capacity dedicated to NextG 800G and 1.6T, well, this is a huge strategic advantage for a pretty small company. Now, there's certainly competition out there and I've covered all of them in Patreon discord from the Lummenums and the Coherent, which I think is the best of breed. We also own Coherent. You've got Corning, you have MXL. There's a ton of these names. Now, I want to crunch the 2027 math. So, what actually happens if all this comes to fruition? What will the stock potentially be worth? Before I do that, if you're getting value from this video, drop me a like and drop me a comment. Share the video with a friend. Let me know which stocks you're buying right now in the dip. Are you buying any of these Platonics players and which are your favorite? And if you're new here, please subscribe to the channel. Click that bell to make sure you don't miss the next video. Okay, so let's do the math on this together. Projecting out to a mid2027 monthly run rate. The numbers reflect a massive pivot. The legacy 100G and 400G products are still expected to pull in a very healthy 90 million a month. But the next generation that's taking over in Texas 800G is projected at 217 million a month. And the bleeding edge 1.6T is slated for $164 million a month. Remember, Sugarland, Texas is dedicated just to these last two, 80 and 1.6T. Now, if we look at the last quarter, they only brought in $191 million. So, these numbers are absolutely mind-boggling. And while we're here, I just want to show you this. This is another red flag. the the fact that the gross profit margins are less than 30%. I generally avoid stocks that have lower gross profit margin. Now, with that said, I do think that these profit margins can expand with Sugarland Texas. The company is actually in the TTM 12 months trailing burning about $12,000 per employee. This is a very speculative stock. It has massive growth, 120% forward revenue projection. In fact, if you do the math on 2027, it's pretty insane. So this stock depending on what happens it could end up being an expensive stock or it could end up being a very attractive price at these levels. You talk about the non-GAAP you know PE ratio forward 167. We don't actually have a gap forward. I generally won't buy a stock if it doesn't have a gap forward P ratio. The exception is speculative stocks where I think that there's attractive long-term value there. And this is exactly the case with the stock. I mean it's not cheap. you're talking about a 9.3 price of sales forward. Now, with that said, nine price of sales is expensive, but if you can continue to grow at 100% clip every, you know, every quarter, year-over-year beats, you can grow into that valuation quite quickly. And I think there's a decent chance that could happen with AOI. Now, if you look at the year-to date, it's up 226%. So, you could say, well, you're chasing. Well, yeah, but at the same time, it was a $233 stock. The question is always, what is the stock actually worth? Is it worth $230 or is it worth $75? And of course, the chart's not going to tell you that. You have to do the fundamental research to understand what you think the stock's worth. Look at competition. And I have done all of that for you on Patreon. If you want to join us and this kind of content's helpful to you, definitely check out patreon.comfiredupwealth. or you can go into the pinned comment, click the link, join the elite masterclass tier because it has all of these companies covered in deep dive showing you exactly what I think about each stock and even going into the prices I would pay. Even going into comparisons, um, Coherent is one that we own in the community portfolio as well as now AOI. You can see some of the comparisons here. But this type of information, this deep dive information, if you find it helpful, this community, this Patreon community would be very, very useful to you. So definitely check that out. But getting back to the valuation and price projections that could happen here. When you add those monthly projections up, you hit 471 million a month. That's a month. I just showed you 191 million per quarter, which is three months. So just do some napkin math or in your head and you could see where easily the stock price could be attractive right here, right now. If you analyze that midyear run rate, $471 million times 12, you arrive at a mindblowing figure, $5.7 billion in revenue. Now, right now, we're tracking less than a billion dollars. That's a big deal. If the stock continues to hold a premium, this is where you can make money as an investor. Is it guaranteed? Of course not. But this is the potential annualized AI hardware run rate by mid 2027. Now, if you're a long-term investor, you have to be patient because right now it's 2026. Will it happen overnight? No. It could be a two or threeear story before it actually plays out. You know, things like Sugarland, Texas might not be at full capacity right away. Management often says, "Hey, this is going to happen." And it gets pushed and sometimes that's out of their control, especially with all the bottlenecks that we have, right? So just understand there are risks to investing in a spec stock like this. But 5 5.7 billion is the theoretical engine capacity the company's currently building. Not guidance for the full year and not guaranteed. Because of that required ramp up analysts weigh completely different scenarios for full year 2027. In my view here's how they frame it. So the base case the street style scenario is 2 to 2.5 billion. This assumes a healthy ramp, but recognizes they won't operate at peak capacity in the full 12 months. And I I think this is probably the base case. A flawless execution scenario models out 3.5 to 4.5 billion. This happens if they hit that massive mid-year run rate exactly on schedule, grow output aggressively in the second half, and add in a solid base of also that cable TV revenue. Hitting that execution case totally changes the profile of the entire company. Now, here's the part that you clicked on the thumbnail for why you wanted to watch the video in the first place. What could this mean for the stock price? I'm covering this as analysis, not as a recommendation. I've been doing this for almost three decades. I started in investing in the late 1990s. I'm learning every single day and I'm not a financial adviser. So, full disclosure, I do own some of this as spec. We have a $79.70 cost basis or something like that under 80 bucks. But the nuance that everybody missed in that sell-off is delusion was closer to 6% not 15%. That's part of full fear of losing everything and sentiment and everything's really good. Buy by buy at any price things start getting bad. Sell sell at any price. FOMO on the on the upside. Fear of missing out. Full fear of losing everything on the downside. Let's use that $4 billion a year as a framework, not a promise. And look at what the math could look like if they execute. In my opinion, as of the recent snapshot, where the stock sat around $114, hitting that 4 billion mark could drive some interesting value here. At a conservative four times multiple, in my view, the implied math points to about $175 a share. Of course, right now, it's trading closer to 110. At a six times sales multiple, you're looking at $260 a share. And if you price on forward earnings of 20 to25, you land at about $187 a share. Now, of course, that's a big range because if I say 260 and I I buy it at 110, that's good upside. 187, that's still good upside in my opinion, but it might not be good upside for everybody else because especially in this market, so many people are trying to f, you know, chase the next 5x and 10. You have to be really careful with these kind of markets because your expectations get very skewed and at a certain point, you have to realize not every stock that you buy is going to give you massive returns, right? And nothing's guaranteed, but you're looking at a range here really of 175 to 260. But, and this is a massive butt because I'm going to give you an extreme bull case here. Nothing is guaranteed. Nothing is buy and hold forever. It's buy, hold, monitor. And I consider this speculative. So, you want to have a small position. And I I can't tell you to buy the stock. It's up to you. But if you are managing your own money and you decide to buy the stock, I personally would buy a small position like 1% spec and understand that nothing's guaranteed. But you saw probably chatter out there, maybe $300, $450, different analysts. That only happens if investors treat a $5.7 billion run rate as durable and keep a growth multiple on it. In other words, it has to keep the same multiple now later. And it usually doesn't work that way. People are willing to pay for forward possible growth. Once the growth starts getting baked in, they don't want to pay. Look at look Nvidia. Look at Nvidia. Great example. This is going to require literal perfection and execution as well as extreme optimism. And obviously, I would never bank on perfection, but you could see prices as high as 450. Not saying it's going to happen, not saying that it's it's guar nothing's guaranteed. It's just a possibility based on data as well as Wall Street analysts recommendations and discussions. Again, not financial advice. So, really quickly though, what could break the upside? I got five things for you. So number one, yield issues and customer qualifications. Hyperscalers might say, "Hey, we don't want to work with you anymore." Or they might have rigorous tests that these products don't actually meet, right? They don't actually meet the quality levels they're looking for. That is a potential risk. Number two, component and equipment shortages can literally paralyze the new plant and that could be out of their control. Number three, standing up this infrastructure might require further stock dilution. I think the dilution you just saw is part of the reason why they needed to buy more stuff to build this out, right? But you could see more. And I think there's a good chance you do see dilution again. Dilution is real. Remember though, it was a 6% dilution on a 15% selloff. Number four, if that legacy cable TV market fades faster than expected, it drags and right now they need that revenue for the company to build out the other component or other segment in the data center. Number five, once the massive growth is fully proven, the market might just compress the multiple, which actually happens quite often, and growth gets valued as value. Again, Nvidia, a great example. And yes, because revenue is concentrated, a delay or an order cut from one of these whales, you know, the hyperscalers, is going to alter that P&L, that balance sheet very quickly, and the stock price can get very ugly very quickly. That's also why we trim into strength because if a stock goes parabolic, we'll often we'll often trim on these kind of high beta names, we'll go to house shares and we'll kind of ride the rest. Now, full transparency, we bought in the SE high770s. So, we started buying at 82 in DCA. Cost basis is $7944, up about 41% as of current levels. Those buys were shared in real time in our private community in our Discord. And so join us if you want to have that real time data and not the lag because I shared this data days before we actually make the video. Right? Even on Monday, I did an update telling you that it's only 6% dilution and that it could be an opportunity and here it is now Thursday. It takes several days to create the video on YouTube where Discord instant data. So I want to stress this again. This is a spec stock. Don't be the guy or the gal that bets the farm on a spec name and puts 5% in their portfolio. If you decide to buy it, it's your decision. These have high beta position sizes should be managed appropriately. Small like 1% spec type positions. So, finally, what is my take and conclusion on applied opto electronics? I'm covering this name very closely. I did a ton of research and due diligence before I actually pulled the trigger. I shared all of that in the private community. I want to see Sugarland, Texas hit that late Q3 start or at least start sometime in this calendar year. I want to see those 800G and 1.6T orders start to convert. I want to see that revenue profile diversify away from cable television. I want that data center mix, that revenue mix to grow and be the largest part of this company by a long shot. I believe that the riskreward is attractive for AOI stock as a spec investment for a long-term investor looking to hold two or three years. And I think even at this $100 type range, it's a position where there's potential to double your money. Never a guarantee and never financial advice. If this video was helpful, make sure you drop a like, drop a comment, subscribe to the channel, click that bell for notifications. Thanks for watching. Have a great rest of your day. Take care.