Applied Optoelectronics (AAOI) has broken ground on a new 210,000 square foot manufacturing facility in Sugar Land, Texas, and has doubled its planned investment in the site to US$300 million to support data center demand.

The new Sugar Land expansion comes after a sharp run in the share price. The 90 day share price return is 104.94% and the 3 year total shareholder return is very large. This suggests momentum has been strong even after a 9.11% one day pullback to US$43.99.

If you are watching how data center demand is shaping opportunities across the market, it could be worth scanning our list of 34 AI infrastructure stocks as a next step.

With the share price more than doubling in 90 days, AAOI now trades above the average analyst price target of US$36.60, which raises the question: is there still an opportunity here, or is the market already pricing in future growth?

Most Popular Narrative: 20.2% Overvalued

The most followed valuation narrative puts Applied Optoelectronics' fair value at $36.60, below the last close at $43.99, which naturally raises questions about how much optimism is already priced in.

Ongoing expansion and ramp-up of domestic (U.S.) and Taiwan-based manufacturing for advanced transceivers, with capacity expected to increase more than 8x by year-end and major customers requiring U.S.-based production, provides a competitive edge and reduces tariff/supply chain risks, supporting higher future revenue visibility and potential margin stability.

Curious what kind of revenue trajectory and margin profile need to line up with that ramp in capacity? The narrative leans on ambitious growth, rising profitability, and a future earnings multiple that assumes those building blocks fall into place.

Result: Fair Value of $36.60 (OVERVALUED)

However, there are still pressure points, such as heavy capital spending and tight customer concentration, that could quickly challenge those upbeat margin and growth assumptions.

Build Your Own Applied Optoelectronics Narrative

If you are not fully aligned with this story, or prefer to weigh the data yourself, you can build a tailored view in minutes by starting with Do it your way.

A great starting point for your Applied Optoelectronics research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.