Two Top Oversold Optoelectronics Stocks

Oversold Suppliers of the AI Trade

But first, what’s optoelectronics?

Computers speak in electrons. Fiber in fiber optic cable speaks photons. Connect the two and that’s optoelectronics.

Lasers provide the light and modulators encode digital information to be transmitted:

Optoelectronics technology is efficient and solving a data transmission problem that’s been an AI bottleneck recently.

Recent pullbacks in two great optoelectronics companies have provided potentially attractive opportunities. The first company is Ciena (CIEN), a $50 billion market capitalization firm that makes high-speed optical network equipment.

Shares have fallen 49% from recent highs, down to a recent price of $321 per share. That’s moved the forward price-earnings ratio down to just 29 times.

The downturn came not from earnings – those were great, beating both the top and bottom lines – but from Q4 guidance. Still, analysts hiked per-share earnings targets to $11.70 in 2027 and $16.77 in 2028.

Earnings and money flows offer strong tailwinds for Ciena. Institutions have been buying the stock in big quantities only until recently:

Fighting against strong earnings and institutions willing to buy is usually a losing game. Right now, it looks like this is a high-quality company that’s being unfairly punished.

The next optoelectronics company under market pressure is Applied Optoelectronics (AAOI). It’s a $9 billion market cap company that builds optical components for AI networks.

While it’s a smaller, riskier company, it has big upside. Shares have been volatile, falling 53% from highs:

The decline brings the company’s valuation to an attractive spot, especially considering its forward prospects. Analysts peg 2027 revenue at nearly $3 billion and net income doubling to $1.2 billion.

Institutions bought the shares in a big way through May:

It’s true that all stocks get sold at points. But not all of them get bought again in big ways.

The fundamentally sound companies are the ones that attract institutional support once again. And it wouldn’t surprise to see inflows return to AAOI.

Limited Opportunity on Quality

These downturns won’t last forever.

So, it’s important to jump on the best stocks getting unfairly sold. That’s because the opportunity will fade eventually.

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Disclosure: at the time of publication, the author holds no positions in CIEN or AAOI.