Rosenblatt announced Tuesday that it has initiated research coverage of Applied Optoelectronics (NASDAQ:AAOI) with a ‘Buy’ rating and a $23 price target. While revenues have been flat over the past three years, Rosenblatt sees sales poised to explode starting mid-2024, driven by AI 400+G Optical interconnects for Data Centers and DOCSIS 4.0 amplifiers for Cable networks.
“Based on our extensive work, the AI 800+G Optical transceiver market is forecast to be $7.5bn in 2025, with the total high-speed Datacom transceiver market worth ~$12bn. AAOI could potentially capture 10+% share of the total, suggesting our $485mn revenue forecast for 2025 may be conservative despite the 40% growth rate,” wrote the analysts in a note to clients.
DOCSIS 4.0 should not be overlooked as a secondary driver, noted Rosenblatt.
“AAOI makes products that are key for Cable MSO networks, such as HFC system amplifiers and tunable 10G and 25G transceivers. The company's CATV revenues are down 40% YTD on the DOCSIS 3.1 inventory correction.”
“The CATV segment made up 16% of AAOI's 3Q23 revenues versus 55% in 3Q22. AAOI's CATV revenues and profitability should begin to recover by 2H24, likely slightly behind the timing of the AI Optical ramp.”
The analysts are modeling ~40% H/H revenue growth in 2H24 vs 1H24 for AAOI's CATV segment, and more than 50% y/y segment sales growth in 2025.
AAOI shares were trading up 4.98% at $16.76 near end-of-day trading Tuesday.