What happened

Shares of Applied Optoelectronics (NASDAQ:AAOI) surged as much as 17.9% higher on Monday thanks to a mildly bullish research report from analyst firm Rosenblatt.

So what

Rosenblatt analyst Jun Zhang maintained his neutral rating on Applied Opto, but raised his price target on the stock from $10 to $14 per share. The vertically integrated maker of fiber-optic networking products from laser components to turnkey networking systems will report second-quarter results on Thursday. Zhang rebalanced his estimates for this report, raising his revenue target thanks to Applied Opto's prominent position in the solid market for hyperscale data center networking but lowering his earnings estimate due to margin pressure on high-end optical networking modules.

A bundle of fiber-optic cable strands lit up in white against a black background.

Image source: Getty Images.

Now what

Zhang also noted that Applied Opto's shares had gained 25% in the last two weeks, making him uncomfortable with a price target that was starting to look downright bearish by comparison. The stock has now posted market-beating gains of 20% year-to-date and 43% over the last 52 weeks. The COVID-19 pandemic disrupted the company's supply chain but also boosted the value of high-speed networking across many different industries. Thursday's earnings report will either support or undermine these impressive gains, depending on where Applied Opto's chips actually fell in the second quarter.