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

Original Title: "AAOI Surges Over 10 Against the Market Trend, 'New Stock God' Serenity Says It Could Double Again"
Original Author: Ada, Deep Tide TechFlow

On June 4th, Eastern US time, U.S. tech stocks experienced intense volatility triggered by Broadcom's earnings guidance, marking the first crack in the AI valuation narrative.

Broadcom's FY2Q performance itself was not poor, with revenue of $22.2 billion and EPS of $2.44, both beating consensus estimates, and AI semiconductor business grew 143% year-over-year. However, its guidance for the current quarter failed to match the market's already inflated expectations. CEO Hock Tan also revealed during the conference call that major custom chip client Google might diversify its supply chain, and stated that chip business expansion would drag down gross margins. This combination broke through the core narrative supporting AI trading over the past few months, causing intense capital rotation that day.

The Dow Jones Industrial Average rose 1.7% on the day, driven by traditional sectors, reaching a new all-time high; but the Nasdaq Composite declined 0.09%, and the Nasdaq 100 fell 0.5%. In this "dumbbell-shaped" market divergence, leading stocks in AI and semiconductors faced broad selling pressure: Broadcom -12.59%, Micron -7%, Marvell briefly down 7% pre-market, AMD pre-market down over 4%.

However, amid this widespread decline, AAOI charted an independent trajectory opposite to the sector sentiment.

Broadcom's Guidance Shatters Expectations, AI Sector Faces First Valuation Sell-off

Broadcom became the fuse that triggered the collapse of AI trading, not because its performance was poor, but because its guidance failed to match the market’s top-tier expectations.

Hock Tan disclosed during the earnings call that AI chip sales for this fiscal year (ending October) would reach $56 billion. While this figure is huge, it falls short of market expectations. Coupled with his comments on Google diversifying its supply chain, the market's valuation premium supported by ASIC business over the past year was shaken. During trading, Broadcom dipped to a low of $403, with its market cap evaporating about $300 billion, marking the largest single-day decline since January 2025.

Selling pressure then spread across the entire AI compute chain. The storage sector also declined in tandem, with Micron—viewed as a core supplier of AI accelerators HBM—deeply tied to AI capex sentiment, dropping about 7% in a single day. Storage stocks like SanDisk and Western Digital also weakened. CrowdStrike, despite reporting a decent Q2 revenue outlook, was indiscriminately sold off amid the cooling of AI trading.

Bridgewater founder Ray Dalio joined the warning camp on AI valuation that day, clearly distinguishing "buying AI stocks" from "investing in AI technology," warning that current valuations "may be becoming excessive." This echoed recent warnings from JPMorgan CEO Jamie Dimon and Apollo CEO Marc Rowan about AI capex and high valuations.

The rotation of funds also signals that capital is flowing into traditional economic stocks represented by the Dow Jones Index, rather than completely retreating from risk assets. This indicates the market is not experiencing systemic risk aversion but is undergoing structural de-risking within the AI sector.

AAOI's Independent Trajectory: Surges Over 10% in a Single Day, Reaches Short-term Highs During Trading

In this environment, AAOI surged 11.76% in a single day, climbing from around $171 to $209.64 intraday, closing at $202.89, sharply contrasting with the sharp declines in Broadcom, Micron, and others.

AAOI had already experienced multiple rounds of intense volatility. On May 13, it hit a historical high of $233.67; on May 29, it dropped 9% in one day; on June 1, it rebounded 17.18%-18.81%; and on June 4, it again showed an 11.76% independent rally. In just the past 30 days, there have been more than four trading days with over 10% volatility. Such volatility has become normal for AAOI’s current valuation structure, with trading volume on May 11 reaching 214% of the three-month average.

The medium-term catalysts driving AAOI’s strength are relatively clear. Rosenblatt on May 8 (the day after the company announced Q1 results) raised its target price from $140 to $220 and reiterated a "Buy" rating, listing it as a "top pick." Raymond James also raised its target from $72.50 to $160, while B. Riley increased it to $129 but maintained a neutral stance. Rosenblatt’s core logic includes contributions from Amazon’s $800G optical module revenue; the potential for a second revenue stream from Oracle’s qualified certification; and rising demand across 100G/400G/800G and emerging 1.6T product lines.

Fundamental data also support this outlook. AAOI has disclosed that orders for 800G and 1.6T optical modules have exceeded $324 million; in April 2026, it received a $20.9 million grant from Texas Semiconductor Innovation Fund to expand its Texas Sugar Land factory to 210k square feet; and announced new capacity of 388k square feet in Pearland, aiming for a monthly capacity of 700k units for 800G and 1.6T modules by 2027. Management guides that by Q3 2027, optical module revenue will reach an annualized level of $1.4 billion.

However, AAOI’s fundamentals are not flawless. Its actual Q1 2026 results fell short, with a GAAP net loss of $14.3 million and revenue of $151.1 million, both slightly below consensus estimates. After adjusting guidance, Q2 EPS is expected to be between -$0.03 and +$0.03, near breakeven. B. Riley pointed out that AAOI’s 800G mass production will be delayed to the second half and that there are execution risks due to over-reliance on customer forecasts. Additionally, senior executives sold about $12.6 million worth of stock in mid-May, and although remaining holdings are still large, the timing of the sales coincided with high stock prices.

In short, AAOI is currently caught in a tension of "strong narrative, weak Q1 earnings, and significant valuation premium," which is the fundamental reason behind its high daily volatility.

It’s worth noting that AAOI also has an additional potential driver—referred to in Chinese circles as the "new stock god" Serenity, who has posted multiple times expressing confidence in AAOI, considering it his most favored optical communication exposure in the US stock market. He started building a position at $28, which could make it "the next SanDisk."

Contrarian Strength: Internal "Differentiated Pricing" Within the AI Sector

AAOI’s rally against the trend on June 4 should not be seen as a counterexample to concerns about AI valuations but rather as an early signal of "differentiated pricing" emerging within the AI sector.

One of Serenity’s April public judgments was that optical communication stocks might be more resilient than large-cap tech stocks: "Even if the S&P 500 drops another 20%, optical communication companies could still outperform." Its logic is rooted in supply chain scarcity, with InP substrates, laser sources, and 800G optical module capacity in a structurally tight state in the medium term, with pricing power on the supply side rather than demand.

The recent sell-off triggered by Broadcom’s guidance essentially corrects the narrative of "custom ASIC + large customer concentration," rather than a fundamental revision of overall AI infrastructure demand. From this perspective, optical communication stocks closely related to downstream compute deployment do not directly overlap with Broadcom’s core issues (customer concentration, Google diversifying supply chains).

However, risks also exist. AAOI’s current valuation already incorporates high expectations for execution, assuming it will reach $1.4 billion in annualized optical module revenue by Q3 2027 and maintain high gross margins. If Q2 or Q3 results fail to confirm the 800G mass production pace, or if there are any fluctuations in customer concentration risks (Amazon, Microsoft), the valuation structure could experience sharp reversals. The weak Q1 results have already exposed some cracks, which are currently masked by order growth and capacity expansion narratives but have not been fully eliminated.

For Chinese market observers, what’s noteworthy about AAOI’s contrarian rally is not the increase itself but the internal capital flow differentiation—when the first cracks appear in the overall AI narrative, the fact that funds are willing to add to AAOI during Broadcom’s sell-off indicates a judgment that Broadcom’s issues are not equivalent to all AI capex problems. Optical communication still remains a recognized "physical bottleneck" narrative. Whether this judgment holds will ultimately depend on the actual financial results in the coming quarters.

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