Applied Optoelectronics (AAOI) surged 5.56% in pre-market trading on Wednesday, recovering sharply from the prior session's decline. The stock rebounded as investors focused on the company's robust second-quarter fundamentals and an upbeat demand outlook, particularly in its data center business.

The company's Q2 revenue jumped 86% year-over-year to $191.9 million, with data center revenue surging approximately 140% to surpass $100 million for the first time. Revenue from 800G products grew more than tenfold, and management noted that customer demand exceeds supply capacity by 20% to 40%, a gap expected to persist through mid-2027. The broader optical communications sector also provided tailwinds, with peers like Lumentum and Nokia posting strong gains, reinforcing the positive momentum for Applied Optoelectronics.

The rebound follows a roughly 5% drop in the previous session after B. Riley cut its target price on the stock, which triggered profit-taking. However, the underlying strength in hyperscale data center demand and the anticipated start of 1.6 terabit transceiver shipments later in the third quarter have renewed investor confidence.