X Applied Optoelectronics (AAOI) will get a boost from tech companies like Amazon.com (AMZN) and Facebook (FB) that are upgrading data centers to superfast communications for cloud-based services, says Needham & Co., which initiated coverage on the optical parts maker with a buy rating.
Analyst Alex Henderson set a price target of 85 on Applied Optoelectronics stock. Applied Optoelectronics shares jumped 12.2% to 71.12 on the stock market today, hitting a new record high.
Rival Finisar (FNSR) stock jumped 10.2% to 25.99, vaulting above its 50-day moving average. A Rosenblatt analyst said Finisar may resume shipping products to China network gear maker Huawei.
Another peer, Ciena (CIEN), was upgraded to buy from hold at Stifel Nicolaus on improving market trends and recent contract awards. Ciena stock was up 6.4% to 24.41, also retaking its 50-day line.
A Jefferies analyst, in a report published Monday, said he expects upside for Oclaro (OCLR), Finisar and possibly Lumentum Holdings (LITE) from an announcement by wireless phone company China Mobile (CHL), which is building out a new "packet transport network."
Applied Optoelectronics is well-positioned in the data-center market, Henderson said in a report. "We expect very strong demand growth over the next several years as the Web 2.0, Big Data, social media and (cloud) companies drive efficiencies through their current and new scaled-out data-center footprints," he said.
Applied Optoelectronics' biggest data-center customers are Amazon, Facebook and Microsoft (MSFT), analysts say.
IBD'S TAKE: Shares of Applied Optoelectronics were up 185% in 2017 as of Friday's market close. The stock has an IBD Composite Rating (a CAN SLIM investing metric) of 99. See more information on the company and other makers of fiber-optic parts at IBD's Stock Checkup.
Tech firms are upgrading to 100-gigabit-per-second technology in data centers packed with computer servers. They're upgrading gear that connects server racks to high-speed network switches as well as links between data centers.
"We think Applied Optoelectronics will materially exceed Street estimates in 2017 as the industry rolls through the steep ramp phase of the data comm upgrade to 25/100 Gbps," added Henderson.
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