What happened

Shares of Applied Optoelectronics (NASDAQ:AAOI) gained 58% in July 2017, according to data from S&P Global Market Intelligence. Yes, the stock gained 58% in a single month. That's not a typo.

So what

The maker of high-speed transceivers and other components for fiber-optic networking equipment was already on a massive roll at the start of July, having soared nearly 200% higher in the first six months of 2017. And then the train kept rolling.

AOI released preliminary second-quarter results on July 13, exceeding management's own guidance targets by wide margins. An avalanche of analyst upgrades and target price boosts followed, and AOI's share prices jolted upward with every rosy research note.

Fiber-optic network cables plugged into an Ethernet transceiver.

Image source: Getty Images.

Now what

Analyst firm BWS Financial broke from the jubilant crowd to issue a sell rating on AOI with a hugely negative target price of $25 per share on July 20. Its theory is that largest customer, Amazon.com (NASDAQ:AMZN), has been ordering high-speed optical transceivers from AOI rival Fabrinet (NYSE:FN) recently, arguably pointing to lost sales for this highflier.

The markets simply shrugged off that complaint and AOI's rise continued. Amazon could simply be ordering more transceivers on top of the large supply AOI can provide. Consider this quote by Applied Optoelectronics CFO Stefan Murry from the first-quarter earnings call in May: "Right now, we're basically shipping everything we can manufacture. So the growth rate is not dependent on demand. It's dependent on our ability to continue to ramp our manufacturing."

Murry added, "There's a limit to how fast we can increase our production capacity. So that's really the limiting factor to the growth rate."

So Amazon might be wise to expand its component sourcing to another supplier -- and that's not necessarily bad news for AOI at all.