What happened

Shares of Applied Optoelectronics Inc. (NASDAQ:AAOI) jumped as much as 23.6% higher in Wednesday's morning session, following the release of strong second-quarter results. By 11 a.m. EDT, the stock had cooled down somewhat to a 15% overnight gain.

So what

The maker of fiber-optic networking modules and components saw second-quarter sales falling 25% year over year to land at $87.8 million, comfortably ahead of Wall Street's $77.8 million expectations. On the bottom line, adjusted earnings decreased 58% to $0.64 per diluted share, also far above analysts' $0.45 expectations.

Looking ahead, AOI centered its third-quarter earnings guidance around $0.65 per share, just ahead of the Street's current $0.64 consensus estimates. Revenue guidance of approximately $87 million stopped short of the $90 million analyst view.

AOI's corporate logo in purple text on a grayscale gradient.

Image source: Applied Optoelectronics.

Now what

Data center orders drove the second quarter's revenue surprise as AOI's customers continued to adopt its high-end 100-gigabit transceivers. Management is "pleased" with the order flows from its regular top customers, but the company is still trying to diversify its operations to a broader customer base. The 100-gig orders should double to roughly $80 million per quarter in the second half, based on the backlog of committed orders that have not yet been shipped. The emerging longer-term trends are also looking good, as the quarterly 100G sales should double again in 2019.

Applied Optoelectronics shares have now nearly doubled from April's 52-week lows, but have a long way to go before conquering the $103 price they briefly touched in the summer of 2017. It's no surprise to see investors celebrating the company's return to form, without getting too excited about the long recovery ahead.

Anders Bylund 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.