AAOI rose over 10% against the market trend; “new stock god” Serenity says it could double again
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AAOI rose over 10% against the market trend; “new stock god” Serenity says it could double again
AAOI’s counter-trend strength on June 4 should not be interpreted as an exception to concerns over AI valuations; rather, it signals the early onset of “segmented pricing” within the AI sector.
Navigating Web3 tides with focused insightsBy Ada, TechFlow
On June 4 (U.S. Eastern Time), U.S. tech stocks experienced sharp volatility triggered by Broadcom’s earnings guidance—marking the first crack in the AI valuation narrative.
Broadcom’s FY2Q results were, in fact, solid: revenue of $22.2 billion and EPS of $2.44 both exceeded consensus estimates, and its AI semiconductor business grew 143% year-on-year. Yet its guidance for the current quarter fell short of market expectations—already pushed to elevated levels—and CEO Hock Tan revealed during the earnings call that key custom-chip customer Google may diversify its supply chain. He also noted that chip business expansion would pressure gross margins. This combination shattered the core narrative underpinning AI-related trades over recent months, triggering dramatic intra-day capital rotation.
The Dow Jones Industrial Average surged 1.7% in a single day—driven by traditional sectors—and hit a new all-time high. Meanwhile, the Nasdaq Composite edged down 0.09%, and the Nasdaq-100 declined 0.5%. Within this “barbell-style” market divergence, AI and semiconductor blue chips faced broad-based selling pressure: Broadcom fell 12.59%, Micron dropped 7%, Marvell plunged nearly 7% pre-market, and AMD slid over 4% pre-market.
Yet amid this broad selloff, AAOI staged an independent rally—running counter to sector-wide sentiment.
Broadcom’s Guidance Punctures Expectations: First-Ever AI Sector Valuation Correction
Broadcom became the catalyst that broke the AI trade—not because its earnings were weak, but because its guidance failed to match sky-high market expectations.
During the earnings call, Hock Tan disclosed that AI chip sales for the fiscal year (ending October) would reach $56 billion. While sizable, this figure fell short of consensus. Combined with his remarks on Google’s potential supply-chain diversification, investor confidence in Broadcom’s valuation premium—built over the past year on its ASIC business—began to waver. During trading, Broadcom hit an intraday low of $403, wiping out roughly $300 billion in market value—the stock’s largest single-day decline since January 2025.
Selling pressure quickly spread across the entire AI compute stack. The memory sector sold off in tandem: Micron, viewed as a core supplier of HBM for AI accelerators and deeply tied to AI capex sentiment, dropped ~7% in a single day. SanDisk, Western Digital, and other memory-related names weakened concurrently. CrowdStrike, though reporting solid Q2 revenue guidance, was indiscriminately sold off amid the broader cooling of AI-related trades.
Ray Dalio, founder of Bridgewater Associates, joined the chorus of warnings on AI valuations that day, explicitly distinguishing between “buying AI stocks” and “investing in AI technology,” and cautioning that current valuations “may be becoming excessive.” His comments echoed recent repeated warnings from JPMorgan CEO Jamie Dimon and Apollo CEO Marc Rowan regarding AI capex and stretched valuations.
The direction of capital rotation also carried signal value: funds flowed into traditional economy stocks represented by the Dow Jones—not into a broad risk-asset exit. This suggests the market is not engaging in systemic risk aversion, but rather executing structural de-risking *within* the AI sector.
AAOI’s Independent Rally: Up Over 10% in a Single Day, Hits New Short-Term High Intrady
In this environment, AAOI surged 11.76%—rising intraday from ~$171 to $209.64 before closing at $202.89—sharply contrasting with the steep declines of Broadcom, Micron, and peers.
AAOI has already undergone multiple rounds of extreme volatility. It hit a record high of $233.67 on May 13; plunged 9% on May 29; rebounded 17.18%–18.81% on June 1; and then rallied another 11.76% on June 4. Within just the past 30 days, it posted daily moves exceeding 10% on more than four occasions. Such volatility has become part of AAOI’s current valuation structure—its trading volume on May 11 reached 214% of its three-month average.
The medium-term catalysts driving AAOI’s strength are relatively clear. On May 8—the day after AAOI reported Q1 results—Rosenblatt raised its price target from $140 to $220 and reiterated its “Buy” rating, naming AAOI a “top pick.” Raymond James lifted its target from $72.50 to $160, while B. Riley raised its target to $129 but maintained a “Neutral” rating. Rosenblatt’s core rationale includes: revenue contribution from 800G optical modules for Amazon has begun; qualification and certification with Oracle could open a second major revenue stream; and demand is surging across generations—from 100G/400G/800G to emerging 1.6T products.
Fundamental support data is similarly concrete. AAOI has publicly disclosed cumulative orders for 800G and 1.6T optical modules exceeding $324 million; in April 2026, it received a $20.9 million grant from the Texas Semiconductor Innovation Fund to expand its Sugar Land, Texas facility to 210,000 square feet; and it announced plans to add 388,000 square feet of new capacity in Pearland, targeting monthly production of 700,000 units of 800G and 1.6T optical modules by 2027. Management guided toward $1.4 billion in annualized optical module revenue by Q3 2027.
Yet AAOI’s fundamentals are not without flaws. Its Q1 2026 results missed expectations: GAAP net loss stood at $14.3 million and revenue at $151.1 million—both slightly below consensus. Its adjusted Q2 EPS guidance ranges between -$0.03 and +$0.03—hovering near breakeven. B. Riley, maintaining its Neutral rating, noted that AAOI’s 800G mass production will likely be delayed until the second half of the year and flagged execution risks stemming from overreliance on customer forecasts. Additionally, AAOI executives collectively sold ~$12.6 million worth of shares in mid-May—though their remaining holdings remain substantial, the timing coincided precisely with a stock price peak.
In short, AAOI currently sits at the intersection of “powerful narrative, subpar Q1 results, and significant valuation premium”—a tension that fundamentally explains its pronounced single-day price volatility.
Notably, AAOI also benefits from an additional potential catalyst: Serenity—a figure dubbed the “new stock god” in Chinese-language circles—has repeatedly expressed bullish views on AAOI, calling it his top long position in U.S. equities within the optical communications space. He began accumulating shares at $28 and believes AAOI could become “the next SanDisk.”
Rationale Behind the Counter-Trend Strength: “Differentiated Pricing” Within the AI Sector
AAOI’s counter-trend rally on June 4 should not be interpreted as evidence against AI valuation concerns—but rather as an early signal that the market is beginning to apply “differentiated pricing” *within* the AI sector.
One of Serenity’s public assessments in April was that optical communications names may prove more resilient than large-cap tech stocks: “Even if the S&P 500 falls another 20%, optical communications companies could still outperform.” His logic rests on supply-chain scarcity: InP substrates, laser light sources, and 800G optical module capacity all face structural tightness over the medium term—giving pricing power to suppliers, not end-demanders.
Broadcom’s guidance-driven selloff, in essence, represents a correction to the “custom ASIC + high customer concentration” narrative—not a revision to overall AI infrastructure demand. Viewed through this lens, optical communications names—closely tied to downstream compute deployment—do not directly overlap with Broadcom’s core issues (customer concentration, Google’s potential supply-chain diversification) in terms of narrative exposure.
Risks remain, however. AAOI’s current valuation embeds extremely aggressive execution assumptions—namely, that it will achieve $1.4 billion in annualized optical module revenue by Q3 2027 while sustaining high gross margins. Any failure in upcoming Q2 or Q3 reports to validate the 800G ramp timeline—or any volatility in customer concentration risk (Amazon, Microsoft)—could trigger sharp valuation reversals. The Q1 report was already weaker than expected; this crack is currently masked by strong order growth and capacity-expansion narratives—but it has not been fully erased.
For observers in Chinese markets, what merits attention in AAOI’s counter-trend move is not the magnitude of the gain itself, but rather the directional choice of capital allocation within the market. At the moment the overarching AI narrative shows its first crack, capital chose to *add* to AAOI even as Broadcom sold off—revealing a judgment that Broadcom’s problems do not equate to systemic weakness across all AI capex. Optical communications remains a recognized “physical bottleneck” narrative. Whether this judgment holds true will ultimately depend on actual financial performance over the coming quarters.
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