What AAOI’s Funding Model Could Eventually Become

Well, with all the fuss around $AAOI opening another $600 million ATM on Friday, I think it’s a good time to talk about what the future funding model could eventually look like.

First, Friday’s filing gives AAOI the ability to sell up to $600 million of stock over time. Actual sales can be staged, sized, paused, or resumed depending on market conditions. So this was an authorization for another ATM, not a $600 million block sale all at once.

And like I mentioned briefly in a message on Friday and my conversation on X, this should not be surprising. They have been heavily utilizing equity to fund this ramp. And they have been very clear that the spending is far from over. CapEx is expected to remain very high in 2nd half of 2026. In order to hit the numbers that everyone is so excited about, this spend is NECESSARY. If they weren’t spending like crazy and weren’t raising money, I would be concerned. Because my thesis rests on an extreme ramp in capacity that requires massive capital.

There was a lot of conversation on X this weekend about how shady it was for management to announce another ATM after the Rosenblatt conference. I honestly am having a hard time understanding that specific point of view.

I actually thought management did a pretty good job at Rosenblatt of laying out exactly where they are. Stefan Murry said AAOI has been “leaning on equity.” He said CapEx is going to remain a big number. He said they would continue making these investments as long as demand remains strong and the returns justify it. And when he was asked when the company could start funding this organically instead of constantly raising money, he said equity should become “less a factor” over time.

So my perspective here is that I think management was getting ahead of the raise and telling investors basically: look, we have to raise more. And we will have to raise more again. But we are actively seeking out different ways to fund our buildout, and when they become available (and make the most sense for us) we will tap into them.

But as investors, they are basically asking us to help fund the massive buildout before rev and cash flow arrive. Anyone who wants to own AAOI ahead of the big inflection has to accept that. There is risk in your ownership getting diluted and impacting your returns. And there is also risk that all of this dilution happens without the target revenue being hit if they slip on execution. That is always the risk with pre-inflection stage, hypergrowth tech companies.

Personally I think there is a good chance we see an additional ATM after this one, probably of similar size. But again, I understand that and accept that. I know that these raises will be headwinds and sentiment killers for some in near term, but for my core holding, it is something that I accept.

But, and this is where I want to go with my article, this is not forever.

They gave us an outline. Over time, they want to rely more on:

• Operating cash flow

• Customer contributions

• Debt

• Potential government support

“Raising everything on the back of equity for the foreseeable future is not our plan”.

This is what I want to focus on today.

AAOI is still in the stage where shareholders are providing the capital.

But there are already examples across this industry of what the next stage can look like.

Companies eventually reach a point where customers need their capacity badly enough that the conversation shifts from “we need this much, go build it” to “we need this much, what do we have to commit in order for you to build it for us?”.

And that can completely change who is taking on the risk.

So let’s dig in to some industry examples and how AAOI can leverage what is out there.