1 Growth Stock Down 50% to Buy Right Now | The Motley Fool

I know, I know. Applied Optoelectronics (AAOI 6.45%) isn’t exactly down in the dumps. As of Aug. 15, 2025, it has gained 178% over the last 52 weeks.

But Applied Optoelectronics earned its price gains the hard and honest way: by selling high-performance optical networking products into several hungry target markets. And despite the impressive one-year return, the stock has dropped 50% from December’s multiyear highs.

Here’s why I think you should consider buying Applied Optoelectronics’ stock in this strange blend of soaring gains and sullen dips.

Booming data center and CATV sales

In the recent second-quarter report, Applied Optoelectronics saw fantastic growth in its two largest divisions. With the artificial intelligence (AI) market driving strong demand for the company’s fastest networking modules, data center sales rose 30% year over year to $44.8 million. Cable TV (CATV) sales soared from $5.8 million to $56.0 million, as an unnamed mega-customer invested in fiber-optic network infrastructure.

These results included the company’s first shipment of 400-gigabit data center transceivers to a tech giant that hadn’t been buying Applied Optoelectronics products for several years. Looking ahead, several large customers are testing the as-yet-unreleased 800-gigabit products. Shipments should start before the end of 2025, with the exact timing depending on factory upgrades and customers’ qualification testing.

Dodging tariffs with smart manufacturing

Applied Optoelectronics also has enough international manufacturing scale to dodge most of the looming tariff costs. Its laser chips have been made in America for years, and next-generation network transceivers will be made in Texas and Taiwan. The most expensive tariff categories are hardly a concern at all, according to earnings-call commentary by CFO Stefan Murry:

In our 800G and 1.6T transceiver designs, less than 10% of the value of the components used is currently sourced from China, and we have a pathway as we scale production to further reduce this China content, ultimately to near zero. We also are in discussion with several key suppliers about onshoring their production to the US to support a robust domestic supply chain.

Can you stomach these investor risks?

Besides AI and CATV networking, Applied Optoelectronics also makes laser-based sensors and network controller chips. It’s an exciting company at the nexus of many promising growth markets.

That being said, it’s not a flawless success story. I can see how two issues might keep you from buying Applied Optoelectronics stock.

• The company’s financial results are a bit jumpy, as a large chunk of its revenue generation comes from very large orders from a handful of key customers. That’s a deal-breaker for investors who prefer a predictable business with smooth revenue streams. However, the bumpy road should calm down over time as Applied Optoelectronics expands its client roster.
• Applied Optoelectronics is in the habit of printing new shares, largely to support its stock-based compensation program. The share count has increased by a whopping 125% in the last three years. But this dilution took place in a period of impressive stock returns. It’s hard to complain about heavy dilution when the stock price still soared 1,340% higher.

There will be surprises on the road ahead, and not all of them will be pleasant. I’m still impressed by Applied Optoelectronics’ disciplined innovation and market-leading performance boosters. Its focus on American manufacturing should also be helpful in this era of international trade tension.

The AI boom is here to stay, and high-speed networking isn’t going out of style any time soon. If you can focus on Applied Optoelectronics’ business growth and overcome these potential downsides, I think the stock should serve you well over the next few years.