This Beaten-Down Growth Stock Just Got 50% Cheaper—Time to Buy?

Wall Street's latest casualty just handed investors a golden opportunity—if they've got the stomach for it.

A 50% fire sale no one saw coming

The crypto crowd knows a thing or two about brutal drawdowns. Now traditional markets are serving up their own version of a post-ATH hangover—except this time, it's a high-growth equity taking the hit.

Why this dip smells different

Unlike vaporware ICOs that crater 90% and vanish, this stock’s fundamentals still hum with institutional-grade infrastructure. Revenue growth? Check. Market position? Solid. But sentiment moves faster than a leveraged BTC trade—and right now, it’s flashing oversold.

The cynical take

Of course, some hedge fund quant probably just needed yacht money and liquidated half their position. Their loss could be your gain—assuming you don’t paper-hand at the next 10% drop.

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.

Image source: Getty Images.

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.