AAOI rises over 10% against the trend, "new stock god" Serenity says it may double again

By Ada, Deep Tide TechFlow

On June 4 (U.S. Eastern Time), U.S. technology stocks saw wild swings after Broadcom’s earnings report guidance triggered a sharp shock—marking the first crack in the AI valuation narrative.

Broadcom’s FY2Q results themselves were not bad: revenue of $22.2 billion and EPS of $2.44 both beat consensus expectations, and its AI semiconductor business grew 143% year over year. However, its guidance for the current quarter failed to match the market’s expectations, which had already been pushed up. During the earnings call, CEO Hock Tan also disclosed that major custom-chip customer Google might diversify its supply chain, and said that expansion of the chip business would drag down gross margins. This combination pierced the core narrative that had supported AI trading over the past few months, leading to intense capital rotation on the day.

The Dow Jones Industrial Average surged 1.7% in a day, boosted by traditional sectors, hitting a new all-time high. But the Nasdaq Composite fell 0.09%, and the Nasdaq 100 dropped 0.5%. Within this “dumbbell-shaped” market divergence, AI and semiconductor blue chips faced broad-based sell pressure: Broadcom -12.59%, Micron -7%, Marvell briefly down 7% before the open, and AMD down more than 4% before the open.

But amid this broad sell-off, AAOI moved in the opposite direction from the sentiment in the sector.

Broadcom’s guidance punctures expectations—the AI sector’s first “valuation massacre”

This time, Broadcom became the fuse that crushed AI trading, not because its performance was weak, but because its guidance failed to match the market’s expectations that had been driven to the top.

At the earnings briefing, Hock Tan disclosed that AI chip sales for this fiscal year (through October) would reach $56 billion. Although the figure is enormous, it is still below market expectations. Combined with his remarks about Google diversifying its supply chain, market confidence in the valuation premium that had been supported by Broadcom’s ASIC business over the past year wavered. During the trading session, Broadcom’s stock hit a low of $403, and its market value evaporated by about $300 billion over the day—its largest single-day decline since January 2025.

Sell pressure then spread across the entire AI compute chain. The storage sector fell in tandem as well. Micron, seen as a core supplier of AI accelerator HBM, is deeply tied to AI capex sentiment and dropped about 7% in a single day. Storage-related bellwethers such as SanDisk and Western Digital also weakened at the same time. CrowdStrike may not have been poor in its own Q2 revenue outlook, but it was indiscriminately sold off in the context of an overall cooling in AI trading.

On that day, Ray Dalio, founder of Bridgewater Associates, joined the warning camp on AI valuations. He explicitly distinguished “buying AI stocks” from “investing in AI technology,” warning that current valuations “may be becoming excessive.” This aligns with the recent, consecutive warnings from JPMorgan CEO Jamie Dimon and Apollo CEO Marc Rowan regarding AI capital expenditures and overvaluation.

The direction of the capital rotation also carries signal. Money flowed into traditional economic stocks represented by the Dow Jones, rather than an overall withdrawal from risk assets. This suggests the market is not experiencing systemic risk aversion, but instead conducting structural de-risking within the AI sector.

AAOI’s independent rally: up more than 10% in a single day, setting a new short-term high again intraday

In this environment, AAOI delivered an 11.76% gain on the day. Intraday, it climbed from around $171 up to $209.64, closing at $202.89—an especially sharp contrast with the steep declines in shares such as Broadcom and Micron.

AAOI has already gone through multiple rounds of intense volatility. On May 13, the stock hit an all-time high of $233.67. On May 29, it fell 9% in a single day. On June 1, it rebounded 17.18%-18.81%. On June 4, it again logged an independent rally of 11.76%. In just the past 30 days, there were more than four trading days with daily swings exceeding 10%. This volatility itself has become the norm in AAOI’s current valuation structure: on May 11, its trading volume reached 214% of the three-month average.

The medium-term catalysts driving AAOI’s strength are relatively clear. On May 8—one day after the company released its Q1 results—Rosenblatt raised AAOI’s target price from $140 to $220 and reiterated a “Buy” rating, listing it as a “top pick.” Raymond James increased its target price from $72.50 to $160 in the same period, while B. Riley raised its target price to $129 but kept a neutral stance. Rosenblatt’s core logic includes that $800G optical module revenue from Amazon has begun to contribute; that Oracle’s qualified certification could open a second revenue stream; and that demand across generations of products from 100G/400G/800G to emerging 1.6T is being broadly boosted.

The company’s fundamental support data is also specific. AAOI has publicly disclosed that cumulative orders for 800G and 1.6T optical modules exceed $324 million. In April 2026, it received a $20.9 million grant from the Texas Semiconductor Innovation Fund to expand its factory in Sugar Land, Texas, to 210,000 square feet. It also announced adding 388,000 square feet of capacity in Pearland, with the goal that by 2027 the monthly production capacity for 800G and 1.6T optical modules will reach 700,000 units. Management guidance calls for optical module business revenue to reach an annualized level of $1.4 billion by Q3 2027.

But AAOI’s fundamentals are not flawless either. Its actual Q1 2026 performance fell short of expectations: GAAP net loss was $14.3 million, revenue was $151.1 million—both slightly below market consensus expectations. After Q2 guidance adjustments, EPS is expected to be between -$0.03 and +0.03, right on the edge of breakeven. B. Riley, while maintaining a neutral rating, pointed out that AAOI’s 800G mass production would be delayed to the second half and that there is execution risk due to over-reliance on customer forecasts. In addition, AAOI executives collectively reduced holdings by about $12.6 million in stock in mid-May. Although their remaining positions are still large, the timing coincided with a high point in the share price.

In short, AAOI is currently caught in the tension of a “very strong narrative, weak Q1 results, and a significant valuation premium”—and that is the fundamental reason it can swing with such high volatility on a single day.

Worth noting is that AAOI may also have an additional potential driver. In the Chinese-speaking community, Serenity—often referred to as the “new stock god”—has posted multiple times saying it likes AAOI, believing it to be his most favored optical-communications exposure in the U.S. stock market. He started building a position at $28, which could make it “the next SanDisk.”

A logical case for strength against the tide: “differentiated pricing” within the AI sector

AAOI’s strength against the tide on June 4 should not be interpreted as a counterexample to concerns about AI valuations. Instead, it is an early signal that the market has begun to apply “differentiated pricing” within the AI sector.

One of Serenity’s public views in April was that optical-communications-related targets may have stronger downside resilience than large-cap tech stocks: “Even if the S&P 500 drops another 20%, optical-communications companies could still outperform.” His logic is rooted in supply-chain scarcity. InP substrates, laser light sources, and 800G optical module capacity are all in a structurally tight state in the medium term and short to medium term, so pricing power lies on the supply side rather than the demand side.

Meanwhile, the sell-off triggered by Broadcom’s guidance is essentially a correction to the “custom ASIC + big customer concentration” narrative, not a correction to overall AI infrastructure demand. From this perspective, optical-communications names that are strongly linked to downstream compute deployment do not directly overlap with Broadcom’s core problems—customer concentration and the possibility that Google may diversify its supply chain.

However, risks remain as well. The valuation implied by AAOI’s current share price already includes extremely high execution expectations. The market assumes it will realize $1.4 billion in annualized optical module revenue in Q3 2027 and maintain high gross margins. If Q2 or Q3 earnings fail to validate the 800G mass-production schedule, or if any fluctuations emerge in customer concentration risk (Amazon, Microsoft), the valuation structure could see sharp reversals. The company’s Q1 actual results were already somewhat weak, and this crack is currently being masked by the narratives of order growth and capacity expansion, but it has not been fully eliminated.

For observers in the Chinese market, what is worth recording in AAOI’s rally against the tide is not the magnitude of the gains itself, but the market’s capital-segmentation choice within it. When the overall AI narrative starts to show its first crack, the fact that funds are willing to add to AAOI right when Broadcom is getting hammered implies a judgment: Broadcom’s problems are not equivalent to all AI capex problems, and optical communications is still considered a recognized “physical bottleneck” narrative. Whether this judgment holds ultimately depends on follow-up quarters of actual earnings delivery.

LAYOUT REFERENCE (source): total_lines=51, non_empty_lines=26, blank_lines=25