Revenue jumped 86% to $191.9M as datacenter optics sales rose 140%, but gross margin slipped to 27.7% and the GAAP net loss widened to $22.8M while $1B+ in share sales funded a capacity build-out.
Revenue
$192M
+86.4% YoY
Net income
-$23M
Diluted EPS
$-0.28
Operating margin
-12.9%
Revenue up 86% on AI-datacenter optics, but the GAAP loss more than doubled
Applied Optoelectronics (AOI) makes optical transceivers — the small plug-in modules that turn electrical signals into laser light and back, so servers and switches in a datacenter can talk to each other over fiber — plus amplifiers and other equipment for cable-TV (CATV) broadband networks. In the second quarter of 2026 (April–June), revenue rose 86.4% from a year earlier to $191.9 million, a fifth consecutive record, driven by datacenter products that more than doubled. But costs grew almost as fast: the company posted a GAAP net loss of $22.8 million, up from $9.1 million a year ago, and burned cash while building factories with money raised by selling more than $1 billion of new shares.
At a glance
Datacenter revenue: $107.7 million, +140.4%. Datacenter is now 56.1% of sales (43.5% a year ago); the 800G transceiver ramp is what moved the top line.
GAAP operating margin: -12.9% (-15.5% a year ago). The business still spends more to run than it earns, even at nearly double the revenue.
$1.03 billion raised from share sales in six months. That funded $335.1 million of capital spending plus $289.7 million of equipment prepayments — and increased the weighted share count 43.7% year on year.
The numbers
Metric
Q2 2026
Q2 2025
YoY Change
Revenue
$191.9M
$103.0M
+86.4%
Datacenter revenue
$107.7M
$44.8M
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+140.4%
CATV revenue
$80.6M
$56.0M
+43.8%
Gross margin (GAAP)
27.7%
30.3%
-2.6 pts
Gross margin (non-GAAP)
29.8%
30.4%
-0.6 pts
Operating margin (GAAP)
-12.9%
-15.5%
+2.6 pts
Operating loss (GAAP)
-$24.7M
-$16.0M
loss widened $8.8M
Net income (GAAP)
-$22.8M
-$9.1M
loss widened $13.7M
Diluted EPS (GAAP)
-$0.28
-$0.16
loss widened $0.12
Non-GAAP net income
$5.5M
-$8.8M
swung to profit
Adjusted EBITDA
-$0.5M
-$3.4M
+$2.9M
Sequentially, revenue grew 27.0% from $151.1 million in Q1 2026, and the GAAP net loss widened from $14.3 million.
Where the growth came from
Of the $89.0 million revenue increase, the 10-Q attributes $62.9 million to datacenter products, "reflecting continued demand for our high-speed connectivity products," and $24.6 million to CATV, "primarily driven by higher sales volume resulting from market share gains and continued aggressive deployment" by cable operators (MSOs). The earnings release adds that 800G product volume "more than doubled sequentially" and that CATV growth came from high-volume adoption of the company's 1.8 GHz amplifiers. Telecom ($3.4 million) and FTTH/other ($0.3 million) together are under 2% of sales.
For the first half, revenue was $343.1 million (+69.2%), with datacenter at $189.1 million (+146.0%) and CATV at $147.4 million (+22.3%).
Why more revenue did not mean less loss
Gross margin fell. Gross margin — the share of revenue left after the direct cost of making the products — dropped to 27.7% from 30.3%. Cost of goods sold rose 93.2%, faster than revenue's 86.4%. The 10-Q attributes this to "increased direct material, direct labor and other manufacturing costs associated with increased production volumes," and separately quantifies about $5.0 million of "increased costs associated with certain data center products" that hurt gross profit in the quarter. Inventory write-offs for scrap, discontinued and damaged products were $3.6 million, up from $0.9 million.
Operating expenses grew 65.3% to $77.9 million:
Research and development: $34.9 million (+69.2%), for personnel and datacenter product development, "including acceleration of planned development efforts to support anticipated demand from certain customers."
General and administrative: $31.6 million (+71.7%), for "increased personnel-related expense and expanded corporate infrastructure."
Sales and marketing: $11.5 million (+41.2%).
Gross profit rose $22.0 million, but operating expenses rose $30.8 million — so the operating loss got bigger in dollars even as it shrank as a share of revenue.
Below the operating line, the prior year had help. Q2 2025 included $7.4 million of other income, mostly a $5.3 million unrealized foreign-exchange gain; this year other income was $0.9 million. Interest income rose to $3.2 million from $0.3 million on the larger cash pile. The company also recorded a $1.3 million tax expense versus none a year ago.
What the headline numbers hide
The non-GAAP "return to profitability" rests on a tax adjustment. Management highlighted non-GAAP net income of $5.5 million ($0.06 per share). The reconciliation adds back stock-based compensation ($4.9 million), discontinued-product costs ($3.6 million, plus $1.1 million non-cash), non-recurring legal and advisory costs ($4.7 million) and a small FX gain — which together take the $22.8 million GAAP loss to roughly an $8.8 million loss. The final step to a profit is a $14.3 million "tax (benefit) expense related to the above" line, reflecting the company's estimated annual tax rate applied to non-GAAP pre-tax income. Adjusted EBITDA — earnings before interest, tax, depreciation and the same adjustments — was still slightly negative at -$0.5 million. Operationally, the quarter was close to breakeven on an adjusted basis, not profitable.
Cash is going out, not coming in. Operating cash flow for the first half was -$73.8 million (net loss of $37.1 million, plus a $70.6 million working-capital build). Add $335.1 million of capital spending and free cash flow — operating cash minus capital spending — was about -$409 million in six months, before another $289.7 million of prepayments for equipment and facilities. That was funded by $1.03 billion of net at-the-market share sales (7.8 million shares at monthly average prices of about $102 to $197) and ended June with $508.8 million of cash. The company also paid $71.2 million in taxes on employees' vesting stock awards.
Working capital is growing fast. Inventory rose 52% in six months to $278.8 million (raw materials nearly doubled to $164.8 million), which the 10-Q attributes to the production ramp, building ahead of anticipated demand and longer component lead times. Receivables rose 28% to $314.0 million. Accounts payable rose $142.2 million, which partly offset both.
Customer concentration is extreme. The top ten customers were 99% of revenue; the top three were 42%, 26% and 24%. The largest single name is CATV distributor Digicomm International — 42.8% of first-half revenue and $211.0 million, or 67.2%, of receivables, on what the 10-Q calls "longer than typical payment terms." Management says its collection history with Digicomm has been good. Separately, Amazon holds a warrant for up to 7.9 million shares at $23.70, most of which vests only if Amazon buys $4 billion of AOI products over ten years; its value is recognized as a reduction of revenue from Amazon.
Dilution sets a higher bar per share. Q3 guidance assumes about 92.8 million diluted shares, versus 62.0 million diluted shares in Q2 2025's non-GAAP per-share figure — about 50% more shares to spread any future profit across.
Guidance held. Q2 landed inside the prior range for revenue ($180–198 million guided; $191.9 million actual) and near the top for non-GAAP gross margin (29–30% guided; 29.8% actual). Non-GAAP net income of $5.5 million beat the guided range of -$2.5 million to +$2.8 million, though the tax line above did much of the work.
Takeaway: AOI's datacenter business is real and growing fast — $107.7 million a quarter, up 140% — but the company is not yet earning money from it. GAAP operating losses widened to $24.7 million, adjusted EBITDA is still negative, and about $625 million of first-half capital spending and equipment prepayments was paid for by selling shares, not by the business. The investment case now hinges on whether the promised margin improvement arrives as the new 800G and 1.6T capacity comes online.
Outlook
For Q3 2026 management guides:
Revenue of $255–290 million (midpoint $272.5 million, about 42% above Q2)
Non-GAAP gross margin of 29–30.5%
Non-GAAP net income of $10.1–24.0 million, or $0.11–0.26 per share on about 92.8 million shares
The CEO said the company forecasts demand for high-speed optics "will continue to outpace our production capacity through mid-2027." The CFO said total manufacturing capacity is "approaching 200,000 units per month" and the company expects to produce "around 650,000 pieces of 800G and 1.6 Tb products per month" by year-end. The 10-Q says 2026 capital spending will stay elevated and capacity investment will continue through at least the end of 2027, and that management "expects gross margin to increase in future periods as a result of product mix, cost optimization initiatives, and production efficiencies."
Our read: The revenue guide implies another large step up, and the capacity numbers suggest management has the orders to justify it. What to watch in Q3: whether GAAP gross margin moves back toward 30% or higher (so far it has fallen as volume rose — 29.1% in Q1, 27.7% in Q2), whether operating expenses stop growing as fast as revenue, and whether operating cash flow turns positive. The $508.8 million cash balance covers a lot of spending, but the company has said it may issue more stock if it needs more liquidity. Until GAAP results turn positive without relying on a non-GAAP tax add-back, this is a fast-growing business funded by shareholders, not yet by its own profits.
Source: Applied Optoelectronics Form 10-Q for the quarter ended June 30, 2026 (filed August 6, 2026) and the Q2 2026 earnings release (Exhibit 99.1 to the Form 8-K filed the same day).