Applied Optoelectronics' (AAOI) data center business, boosted by customers Amazon.com (AMZN), Microsoft (MSFT) and Facebook (FB), is on a roll — a good sign for other suppliers of optical communications technology such as Finisar (FNSR), says Piper Jaffray.
Applied Optoelectronics late Wednesday preannounced Q4 adjusted EPS of 77-82 cents, far above its prior target of 46-51 cents and consensus estimates of 50 cents. That would be a 261% year-over-year jump at the midpoint.
The company sees revenue of $84.5 million to $84.8 million, up 60% at the midpoint and above the prior outlook of $75 million to $79 million. Analysts modeled $77.51 million.
Piper Jaffray hiked its price target on Applied Optoelectronics stock to 35 from 31 after the fiber-optics company preannounced its Q4 results.
Internet companies such as Facebook and Alphabet (GOOGL)-owned Google are new customers of optical parts makers, which have mainly sold products to telecom companies. Internet firms are upgrading to 100 gigabit-per-second technology in data centers packed with computer servers.
"While we believe results were mainly driven by the company's two largest customers (Amazon and Microsoft), we believe AAOI's newest customer (Facebook) had a positive contribution in the quarter," said Troy Jensen, a Piper Jaffray analyst, in his research report.
He said AAOI's big quarter also bodes well for Finisar, another fiber player "significantly leveraged" in data center communications optics.
Applied Optoelectronics shares shot up 32%, above 30, as of late-afternoon trading in the stock market today, blasting to an all-time high. Shares of Applied Optoelectronics rose 36% in 2016, touching a nearly three-year high of 27.28 on Nov. 21.
IBD'S TAKE: Gigamon on Wednesday rejoined IBD's Sector Leaders, which highlights the best stocks in IBD's 33 sectors. All Sector Leaders show outstanding earnings and sales growth in recent quarters.
Some fiber-optic stocks, such as Acacia Communications (ACIA), have been pressured on views that demand has slowed in China.
Finisar and Lumentum Holding (LITE) stocks, meanwhile, fell below their 50-day moving averages early in 2017. IBD's Telecom-Fiber Optics group is ranked No. 55 out of 197 industry groups.
"We believe 100G datacom remains in the early innings of a multiyear upgrade cycle, and given AAOI's leadership in datacom optics, we believe the company will experience impressive growth over the next several quarters," Jensen wrote.
Finisar stock was up 3.5% Thurday afternoon, bute Lumentum fell 3%. The 14-company fiber optics group was up more than 3%.
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