AAOI vs. Lumentum: Which Optical Networking Stock Is the Better Buy?

The Case for AAOI Stock

Applied Optoelectronics is benefiting from the strong momentum in the optical networking market, driven by surging demand for next-generation data center and CATV (cable TV) solutions. In the second quarter of 2026, Datacenter revenues reached $107.66 million, up 140.4% year over year and 32.3% sequentially. The business accounted for 56% of total revenues, supported by stronger shipments of high-speed optical transceivers used in AI-focused infrastructure.

The surge in AI infrastructure deployments that require high-speed optical transceivers has been a major growth driver. This demand is particularly strong for next-generation products such as 400G, 800G, and 1.6T transceivers, which are essential for hyperscale data centers supporting AI workloads.  In the second quarter of 2026, 800G revenues were $12.8 million, representing 11.9% of datacenter revenues, and more than doubled sequentially. Meanwhile, 400G revenues totaled $48.4 million, rising more than fourfold year over year and 27.4% sequentially. 

In the CATV segment, AAOI achieved record revenues of $80.6 million in the second quarter of 2026, up 43.8% year over year, and secured major wins such as being selected by Mediacom for DOCSIS 4.0 network upgrades. The company’s QuantumLink software and next-generation amplifiers are gaining traction with multiple system operators, providing a diversified revenue base and reducing reliance on any single market segment. AAOI expects CATV revenues to be between $100 million and $110 million in the third quarter of 2026 and expects to generate over $325 million annually in this segment.

The Case for LITE Stock

Lumentum is benefiting from strong demand for its optical components and systems, driven by the industry shift to AI workloads and increased data center connectivity. In the fourth quarter of fiscal 2026, the company reported a 109% year-over-year revenue surge to $1.01 billion, marking its eighth consecutive quarter of top-line growth. This momentum is driven by the accelerating adoption of optical links in data centers, fueled by the rise of AI workloads that demand higher speed and bandwidth.

Key growth drivers include record shipments of 800G cloud transceivers and the launch of next-generation 1.6T modules, as well as strong demand for both EML and CW laser chips. LITE’s pump laser shipments surged more than 80% year over year in the fourth quarter of fiscal 2026, and the company remains effectively sold out despite rapid capacity expansion. Strategic long-term agreements with major customers further secure future demand and support ongoing capital investments.

The market’s shift toward near-packaged optics (NPO) and co-packaged optics (CPO) is also playing directly to LITE’s strengths. Customers are increasingly adopting these architectures as intermediate steps to full CPO deployment, significantly expanding the total addressable market for optical solutions. The company is already seeing strong NPO momentum across multiple high-velocity engagements, leveraging its industry-leading laser chip technology. Lumentum expects a fourfold increase in pump laser shipments over the next several quarters and is expanding capacity at its wafer fabs to capture the coming 200-gig and 300-gig lane speed opportunities.

Price Performance and Valuation of AAOI and LITE

In the trailing 12-month period, AAOI shares have gained 499.3%, underperforming LITE shares, which have risen 653.6%. Lumentum is benefiting from the rapid expansion of AI and cloud infrastructure, which is increasing bandwidth requirements within data centers and accelerating the shift from electrical to optical connectivity.

Despite its expanding portfolio, AAOI is suffering from production capacity and key component supply constraints, which have limited its ability to meet surging customer demand for next-generation AI infrastructure products. The company also faced temporary setbacks in its 100G product line in the second quarter of 2026 due to a memory shortage affecting customers’ ability to source switches. This is likely to result in a $20–25 million revenue shortfall in the third quarter of 2026. Operating expenses were also higher than expected, due to increased shipping costs and elevated R&D spending to qualify new products.

AAOI and LITE Stock Performance

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Both AAOI and LITE shares are currently overvalued, as suggested by a Value Score of F.

In terms of forward 12-month Price/Sales, AAOI shares are trading at 5.97X, lower than LITE’s 10.26X.

AAOI and LITE Valuation

Image Source: Zacks Investment Research

How Do Earnings Estimates Compare for AAOI & LITE?

The Zacks Consensus Estimate for AAOI’s 2026 earnings is pegged at 95 cents per share, which has been unchanged over the past 30 days. This indicates a 465.38% increase year over year.

The Zacks Consensus Estimate for LITE’s 2026 earnings is pegged at $18.71 per share, which has increased 3.02% over the past 30 days. This indicates a 115.80% increase year over year.

Conclusion

While both AAOI and LITE stand to benefit from robust AI-driven optical networking demand, Lumentum appears better positioned, backed by stronger earnings growth, rising estimates and accelerating demand for next-generation optical solutions.

Despite AAOI’s expanding portfolio intensifying competition from larger rivals, production capacity constraints and supply chain challenges remain headwinds that could hurt the company’s financial performance.

Currently, Lumentum has a Zacks Rank #2 (Buy), making the stock a stronger pick than Applied Optoelectronics, which has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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