Applied Optoelectronics (AAOI): Hyperscaler Capex Surge Fuels Unprecedented Demand for Optical Infrastructure

Carillon Tower Advisers, an investment management firm, disclosed the second-quarter 2026 investor letter for the Carillon Eagle Small Cap Growth Fund in a release. The letter is available for download. Small-cap stocks experienced broad gains in Q2, with the Russell 2000 Growth Index surging 25.71% compared to Value's 17.24% increase.

Information Technology led the sector rally at 46.79%, while Real Estate, Industrials, and Health Care also performed well. Consumer and defensive sectors trailed, and Energy was the only sector in negative territory. Despite market optimism due to strong corporate profits and economic growth, midterm election uncertainties might cause volatility, particularly in data center development, a crucial economic factor.

The $1 trillion data center spending surge is expected to drive corporate earnings and AI infrastructure investments.

Applied Optoelectronics, Inc. (NASDAQ:AAOI), a US-based producer of fiber-optic networking products, accounted for 1.02% of the Fund's returns in Q2 2026. The company's stock closed at $105.17 per share on September 18, 2026, after a 2.29% decline over the past month. However, AAOI shares have risen 244.37% over the past year. The optical industry is currently under-supplied and experiencing unprecedented demand due to massive hyperscaler capital expenditure announcements.

Applied Optoelectronics is building capacity to meet this demand, according to management's Q2 2026 report. The company has received early orders for next-generation optical products and expects revenue growth to become more visible in the middle of next year.

Despite near-term digestion, Carillon Eagle Small Cap Growth Fund remains optimistic about AAOI's mid-term prospects. Currently, Applied Optoelectronics is not among the 40 Most Popular Stocks Among Hedge Funds. However, 54 hedge funds held AAOI at the end of Q2 2026, down from 55 in the previous quarter. While Carillon acknowledges AAOI's investment potential, it believes other AI stocks offer greater upside potential with less downside risk.

For those interested in extremely undervalued AI stocks, Carillon suggests a free report on the best short-term AI stock. Additionally, an article discusses AAOI and lists AI stocks that have fallen significantly below their peak levels. Readers can also explore Carillon's hedge fund investor letters Q2 2026 page for more investor letters from leading investors.