Boosted by earnings reports from Lumentum Holdings and Applied Optoelectronics, IBD's Telecom-Fiber Optics group has climbed to No. 3 out of 197 industry groups tracked. Lumentum stock has jumped 60% in 2024 while AAOI stock has gained 43% as analysts focus on new artificial intelligence infrastructure being deployed at internet data centers.
Ciena, Infinera and Viavi Solutions also belong to the Telecom-Fiber Optics group, which has underperformed since 2022 amid weak demand from telecom customers.
But internet giants and cloud computing service providers are adding clusters of AI computer servers in data centers that require faster optical communications.
Lumentum and Applied Opto both reported Thursday night. Optical stocks enjoyed a big run from mid-2016 into 2017 during a purported "supercycle."
Lumentum Stock Jumps
For the current quarter ending in December, Lumentum forecast revenue of $390 million vs. consensus of $356 million. The company said it expects adjusted profit of 35 cents at the mid-point of guidance, topping estimates of 28 cent profit.
"It's apparent the company is seeing a significant degree of operating leverage," said Jefferies analyst George Notter in a report.
He added: "The company disclosed a transceiver win with another major cloud provider – bringing their total to three major hyperscalers."
In fiscal Q1, Lumentum adjusted profit fell 25% to 18 cents while revenue rose 6% to $337 million, snapping a six-quarter skid of falling sales growth.
Lumentum stock jumped 13.9% to 83.85 on Friday, up 28.3% for the week to a two-year high
Further, Lumentum has been a consolidator in the fiber-optic components industry. It acquired NeoPhotonics and Oclaro.
Also, Lumentum sells Apple optical components built into iPhones. Apple is among AI stocks to watch.
AAOI Stock Pops
Meanwhile, AAOI stock skyrocketed 55.1% to 27.76 on Friday, capping a near-65% weekly spike to a six-year high.
Applied Optoelectronics reported a Q3 loss of 21 cents a share, widening from a 5-cent loss a year earlier. Analysts had estimated a loss of 17 cents per share. Revenue grew 4% to $65.2 million, topping views of $62.6 million.
The company forecast December quarter of $99 million at the midpoint of guidance, slightly above estimates.
"Key (AAOI) customers include Microsoft, Amazon.com and Oraclein datacenter," said Simon Leopold, a Raymond James analyst in a report.
"The Microsoft project and new 400G single-mode awards at two hyperscalers are boosting data center growth in fiscal Q4. The Microsoft project is ramping more slowly, but the 400G ramp from new cloud customers (Amazon and Oracle) are making up for it, and AAOI expects a significant 800G ramp in 2025."
Meanwhile, Hannover, Md.-based Ciena reports earnings in early December. Ciena competes against Infinera and Cisco Systems. Cisco, which is in the Computer-Networking group, reports Q3 earnings Wednesday.
Also, Infinera stock has climbed 40% in 2024 while Ciena stock has jumped 60%. Viavi stock is up 4.6%.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
