Why Applied Optoelectronics Stock Was Sliding This Week

No investor likes when an analyst becomes less bullish on one of their stocks, sometimes even when the change is relatively slight.

So it wasn't surprising when the market reacted negatively to news of a pundit's price cut on Applied Optoelectronics's (NASDAQ:AAOI) shares Monday. This set something of a tone for the stock; according to data compiled by S&P Global Market Intelligence it was down nearly 9% week to date as of Friday before market open.

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Slight but meaningful cut

The person behind the move was Raymond James' Simon Leopold. On Wednesday he reduced his Applied Optoelectronics price target to $36 per share from his preceding $39. Despite the slice, he maintained his outperform (read: buy) recommendation on the company's stock.

Leopold's latest take on the company was based on one of its crucial markets, the cable TV industry, according to reports. The analyst said he reduced his estimates due to softness in that sector, citing the relatively sluggish recent performance of Applied Optoelectronics peers Harmonic and Vecima Networks.

That said, Leopold remains positive on Applied Optoelectronics' data center business, not least because it has the potential to double the company's sales this year.

A segment that could soar

Late last year, Applied Optoelectronics sounded a very hopeful note about the data center segment, with management saying that the heavy demand for artificial intelligence (AI) functionalities is driving investment into such facilities. If this proves to be accurate, the company is standing in front of a very lucrative opportunity in that segment alone, and that makes its stock well worth watching.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.