It’s hard to tell what the next big thing in artificial intelligence (AI) will be. Undoubtedly, many AI data center companies that became household names this year were little known by investors just over a year ago. While not every red-hot AI stock will hold onto its gains, I do think it’s worth considering some of the market’s promising up-and-coming mid-cap stocks.
As always, though, picking and choosing the winners in the mid-cap AI scene is far easier said than done. That’s why a high degree of risk tolerance will be needed for those who hunt for the lesser-known names to get in before the rest of the market has a chance to catch on.
As is the case with many mid-cap stocks, you will be in for a volatile ride. And double-digit losses can quickly add up, especially if you find yourself chasing a name solely because of momentum. That’s why I’d encourage investors to thoroughly put in the analysis before buying a single share of a company, no matter how excited investors or analysts are at any given time.
The data center firms are laying down the groundwork for the AI boom. However, there are firms that stand behind AI data centers, most notably the ones that manufacture the infrastructure that goes into building them.
Most notably, Corning (NYSE:GLW) is a firm that was recognized as a beneficiary of the AI boom. For those unfamiliar with the name, it’s the firm that makes high-performance optical cables needed in AI data centers. As AI data centers keep going online, more such connectivity solutions will be needed.
Key Points About This Article
- There are mid-cap innovators out there that also stand to gain from the AI boom. But it’s tricky to uncover them.
- Applied Optoelectronics is an up-and-comer that’s been heating up of late. It’s a mid-cap stock worth watching.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Applied Optoelectronics: An intriguing up-and-comer worth stashing on the radar
A smaller, lesser-known mid-cap firm also seeking to capitalize on growth to be had from data center connectivity is Applied Optoelectronics (NASDAQ:AAOI), a mere $1.28 billion company that’s been on a heck of a run over the past three months, soaring more than 255% over the timespan. After the latest upward spike, the mid-cap stock has gained the attention of many seeking to discover lesser-known “hidden gems” in the mid-cap universe.
Understandably, the mid-cap universe is vast, and it can be a rather risky voyage to bet on names that have already had a substantial run-up. That said, AAOI shares are one of the more intriguing names to add to your radar as the firm looks to add to its recent strength.
Applied Optoelectronics is a company that produces fiber-optic components and subsystems, which are necessary for high-bandwidth applications (think AI data centers). It’s not just optical components that make the firm so intriguing, though. The company’s laser innovations and the longer-term opportunity to be in LiDAR vehicles also stand out as a potential growth driver to look forward to.
Perhaps most intriguingly, however, are the new optical communication innovations the firm is working on behind the scenes. Specifically, the new linear pulse optics (LPO) tech stands out as an innovation capable of raising the bar on optical networking performance (think power-efficient, high-performance solutions that don’t break the bank). It’s a product worth keeping tabs on, in my opinion.
In any case, the rising demand for fiber optic connectivity solutions to feed the data center boom bodes very well for firms in the space. It’s a robust secular trend bound to direct investor attention toward the firms, large and small, who are innovating in the space.
AAOI stock has had a run. It’s an intriguing name to watch closely.
At the time of writing, AAOI trades at just north of 84 times forward price-to-earnings (P/E) and around five times price-to-sales (P/S). And with a beta of 1.96, the stock will surely be a pretty wild ride.
Personally, I’d watch the stock for now, as there’s no telling how the stock will react in the near term after its latest upside surge. Should the broader stock market be overdue for a correction, investors keen on the name may have a shot to pick up shares at lower levels.
Either way, the optical connectivity space is an industry that stands out as having strong secular tailwinds going into the new year. If you’re a young investor, forming a watchlist of promising mid-cap names may be worth the effort!
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