Episode Details

Applied Optoelectronics (AAOI) Q2 2026 — Q2 2026 (quarter ended June 30, 2026): revenue $191.9M, +86.4% y/y and +27.0% sequentially, a fifth straight record. Non-GAAP EPS $0.06 vs a ~$0.015 bar; GAAP EPS -$0.28 (net loss $22.8M). GAAP gross margin 27.7%, DOWN from 30.3% y/y and 29.1% q/q. Operating loss -$24.7M vs -$16.0M. Adjusted EBITDA -$0.5M. The 8-K was accepted 4:13 p.m. ET on Aug 6 (AMC), so the $124.22 Aug 6 close is the PRIOR close, not the reaction. Q3 guide $255-290M. Applied Optoelectronics printed record Q2 2026 revenue of $191.9M, up 86%, and every outlet led with the same line: a return to non-GAAP profitability, $0.06 a share against a bar of about $0.015. Read the reconciliation table and more than half of that profit is one item - 'tax (benefit) expense related to the above', +$14.262M, worth $0.18 a share. Strip only that line and non-GAAP EPS is -$0.12. Actual GAAP income tax EXPENSE in the quarter was $1.3M, and a year ago the same add-back was $337K. The cross-check is on the same page: adjusted EBITDA was NEGATIVE $543K. Non-GAAP net income of $5.5M sitting above a negative EBITDA number is the tell. Underneath it, revenue rose 86% while the operating loss got 55% WORSE (-$24.7M vs -$16.0M), because gross profit of $53.2M does not cover operating expenses of $77.9M. First-half free cash flow was -$408.9M on $343.1M of revenue, funded by $968.1M of equity raised in six months. Top three customers are 92% of revenue. THE CALL: SELL (3/5, A REAL RAMP AT A PRICE THAT NEEDS FOUR OF THEM) — base-case value ~$56.0 vs ~$124.22 today. KEY METRICS: - CALL: SELL 3/5, fair value ~$56 vs the $124.22 close (-55%). Bull $85, base $52, bear $11. Street: Buy, 16 analysts, avg target $160. - Revenue $191.9M +86% (Datacenter $107.7M +140%, CATV $80.6M +44%). Non-GAAP EPS $0.06; GAAP -$0.28. Q3 guide $255-290M, +42% q/q. - But: $14.3M tax add-back IS the profit (ex-tax: -$0.12). Adjusted EBITDA -$0.5M. Op loss -$24.7M vs -$16.0M. H1 FCF -$409M. Shares +43.7%. What to watch: UP: gross margin above 32% as the 1.6T mix lands; operating expenses growing slower than revenue for two consecutive quarters; a December quarter that delivers the sequential step the full-year framing implies; free cash flow turning positive without another equity raise. DOWN: the September quarter landing at the low end of $255-290M; gross margin below 27% again; another capital raise before December; or the non-GAAP tax add-back reappearing as the only route to a reported profit. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.