Applied Optoelectronics (AAOI) shares tumbled 5.39% in pre-market trading, giving back a portion of the nearly 20% gains accumulated over the prior two sessions as investors reacted to a lowered analyst price target and a cautious forward outlook.

The decline was triggered by B. Riley cutting its target price on AAOI from $129 to $109 while maintaining a neutral rating, setting the target well below the stock's recent trading levels. Additionally, the company's Q3 guidance issued alongside its second-quarter earnings fell short of Wall Street expectations. Adjusted EPS is projected between $0.11 and $0.26, missing the consensus estimate of $0.28, while revenue guidance of $255 million to $290 million compared to the $278.3 million consensus.

Although Q2 results were robust with revenue jumping 86% year-over-year to $191.9 million and data center revenue surpassing $100 million for the first time, the combination of the below-consensus forecast and the analyst downgrade prompted profit-taking after the stock's sharp recent rally.