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Fabrinet Drops 13% YTD: Should You Buy the Stock at the Dip?
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Key Takeaways
Fabrinet shares are down 12.5% YTD amid customer concentration, margin pressure and elevated spending.
FN's data-center revenues jumped 68% year over year to $669 million, accounting for 51% of revenues.
Fabrinet's DCI run rate topped $1 billion as AI, HPC and next-generation optical demand expanded.
Fabrinet (FN - Free Report) shares have dropped 12.5% year to date (YTD), underperforming the Zacks Computer and Technology sector’s return of 21.7%. FN shares have also lagged peers including TTM Technologies (TTMI - Free Report) , Jabil (JBL - Free Report) and Flex (FLEX - Free Report) over the same time frame. Shares of TTM Technologies, Jabil and Flex have appreciated 84%, 36.2% and 86%, respectively.
The decline in FN price performance can be attributed to concerns over customer concentration, normalization in NVIDIA-related datacom revenues, margin pressure and elevated capital spending. However, Fabrinet’s exposure to AI infrastructure, data-center interconnect (DCI), high-performance computing (HPC) and next-generation optical technologies provides meaningful growth opportunities. So, what should investors do with FN stock? Let’s dig deep to find out.
FN Stock’s YTD Price Performance
Image Source: Zacks Investment Research
FN Suffers From Multiple Challenges
Investors have been apprehensive about Fabrinet’s growth prospects due to the changing growth profile of the company’s relationship with NVIDIA. The company noted that Fabrinet was initially the sole manufacturer of NVIDIA’s 400G and later 800G transceivers, but NVIDIA has since diversified its supply chain and now sources 800G products from multiple suppliers. Fabrinet acknowledged that the unusually rapid growth generated by NVIDIA in earlier periods was never expected to continue indefinitely and must increasingly be replaced by growth from merchant transceiver makers and hyperscalers. Fabrinet expects the datacom business to return to sequential growth in the first quarter of fiscal 2027.
The company is suffering from customer concentration risk. Cisco accounted for 20% of fiscal 2026 revenues, NVIDIA 16%, Nokia 11% and Amazon 11%. Moreover, FN’s gross margin expansion has been limited despite strong top-line growth. In the fourth quarter of fiscal 2026, non-GAAP gross margin was 12.2%, down 30 basis points (bps) year over year from 12.5%, despite revenues increasing 45% year over year. For fiscal 2026, non-GAAP gross margin declined to 12.2% from 12.4% in fiscal 2025.
Fabrinet is spending aggressively to prepare for future demand. In the fourth quarter of fiscal 2026, capital expenditures reached $92 million, while free cash flow was negative $37 million. In fiscal 2026, free cash flow was only $4 million despite operating cash flow of $257 million. While these investments are intended to support growth, near-term cash conversion is being restrained by the construction and acquisition of additional manufacturing capacity.
Fabrinet is aggressively expanding production capacity to ensure manufacturing constraints do not limit growth. Building 10 at its Chonburi campus is expected to add roughly 2 million square feet, while additional manufacturing space has been added at Pinehurst and Nava Nakorn. Fabrinet also acquired a roughly 130,000-square-foot Santa Clara facility to expand its new-product-introduction capabilities. FN estimates Building 10 alone could eventually add roughly $3-$3.5 billion of revenue capacity, taking overall capacity toward $8.5-$9.3 billion. Together with Nava Nakorn, Santa Clara and two potential additional Chonburi factories, Fabrinet estimates its planned footprint could ultimately support roughly $12.5-$14 billion of annualized revenues.
FN Rides on Strong AI Data-Center Demand
Fabrinet’s data-center business is expanding rapidly. In the fourth quarter of fiscal 2026, data-center revenues jumped 68% year over year and 13% sequentially to $669 million, accounting for 51% of total revenues. Communications infrastructure revenues increased 40% year over year to $413 million. The company is benefiting from accelerating investments in AI clusters and hyperscale data centers, which require increasing amounts of high-speed optical connectivity. Fabrinet manufactures transceivers, DCI products, HPC PCBAs, silicon-photonics products and emerging co-packaged optical solutions.
DCI products, particularly 400ZR and 800ZR, are emerging as one of Fabrinet’s strongest growth engines. The company said DCI reached an annualized revenue run rate of more than $1 billion by the end of fiscal 2026. The opportunity is being driven partly by power constraints at hyperscale data centers. The company expects demand for 400ZR, 800ZR and related technologies to continue increasing significantly over the next several years.
HPC is another rapidly developing opportunity. Fabrinet said multiple programs with a major hyperscaler continued to ramp during the fiscal fourth quarter, while the company is installing additional manufacturing capacity for the customer's next-generation silicon platform and other products. The company is also working with additional hyperscale and quantum-computing customers. These applications increasingly require optical connectivity to move workloads and data between computing systems, making Fabrinet’s combination of electronics and optical manufacturing capabilities particularly relevant.
Growth is not limited to AI data centers. Communications infrastructure revenues climbed 40% year over year in the fiscal fourth quarter, supported by telecom systems, satellite communications and components. Low-earth-orbit satellite products are another expanding niche. Fabrinet has been manufacturing products for this market for several years and has two major customers. Management described the segment as significant and growing relatively quickly.
The Zacks Consensus Estimate for first-quarter fiscal 2027 earnings is pegged at $4.19 per share, unchanged over the past 30 days, suggesting 43.5% growth from the figure reported in the year-ago quarter.
The consensus mark for fiscal 2026 earnings is pegged at $18.56 per share, unchanged over the past 30 days, suggesting 31.7% growth from fiscal 2026’s reported figure.
Fabrinet Shares are Overvalued
Fabrinet shares are overvalued, as suggested by a Value Score of C. The FN stock is trading at price/cash flow (P/CF) multiple of 56.42 compared with the broader sector’s 20.97.
FN shares are trading at a premium compared with peers, including TTM Technologies, Jabil and Flex. Shares of TTM Technologies, Jabil and Flex are trading at a P/CF multiple of 42.31, 17.82 and 26.91, respectively.
FN Stock’s Valuation
Image Source: Zacks Investment Research
Here’s Why FN Stock is a Hold Now
Fabrinet’s growth prospects remain compelling, supported by accelerating demand for AI-driven data-center connectivity, DCI, HPC and next-generation optical technologies. The company’s expanding manufacturing footprint should help it capture rising opportunities from hyperscalers and networking customers while supporting continued revenue growth. Although customer concentration, margin pressure and elevated capital spending remain concerns, Fabrinet’s strong positioning in high-speed optical manufacturing and increasing exposure to AI infrastructure provide meaningful long-term upside.
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Fabrinet Drops 13% YTD: Should You Buy the Stock at the Dip?
Key Takeaways
Fabrinet (FN - Free Report) shares have dropped 12.5% year to date (YTD), underperforming the Zacks Computer and Technology sector’s return of 21.7%. FN shares have also lagged peers including TTM Technologies (TTMI - Free Report) , Jabil (JBL - Free Report) and Flex (FLEX - Free Report) over the same time frame. Shares of TTM Technologies, Jabil and Flex have appreciated 84%, 36.2% and 86%, respectively.
The decline in FN price performance can be attributed to concerns over customer concentration, normalization in NVIDIA-related datacom revenues, margin pressure and elevated capital spending. However, Fabrinet’s exposure to AI infrastructure, data-center interconnect (DCI), high-performance computing (HPC) and next-generation optical technologies provides meaningful growth opportunities. So, what should investors do with FN stock? Let’s dig deep to find out.
FN Stock’s YTD Price Performance
Image Source: Zacks Investment Research
FN Suffers From Multiple Challenges
Investors have been apprehensive about Fabrinet’s growth prospects due to the changing growth profile of the company’s relationship with NVIDIA. The company noted that Fabrinet was initially the sole manufacturer of NVIDIA’s 400G and later 800G transceivers, but NVIDIA has since diversified its supply chain and now sources 800G products from multiple suppliers. Fabrinet acknowledged that the unusually rapid growth generated by NVIDIA in earlier periods was never expected to continue indefinitely and must increasingly be replaced by growth from merchant transceiver makers and hyperscalers. Fabrinet expects the datacom business to return to sequential growth in the first quarter of fiscal 2027.
The company is suffering from customer concentration risk. Cisco accounted for 20% of fiscal 2026 revenues, NVIDIA 16%, Nokia 11% and Amazon 11%. Moreover, FN’s gross margin expansion has been limited despite strong top-line growth. In the fourth quarter of fiscal 2026, non-GAAP gross margin was 12.2%, down 30 basis points (bps) year over year from 12.5%, despite revenues increasing 45% year over year. For fiscal 2026, non-GAAP gross margin declined to 12.2% from 12.4% in fiscal 2025.
Fabrinet is spending aggressively to prepare for future demand. In the fourth quarter of fiscal 2026, capital expenditures reached $92 million, while free cash flow was negative $37 million. In fiscal 2026, free cash flow was only $4 million despite operating cash flow of $257 million. While these investments are intended to support growth, near-term cash conversion is being restrained by the construction and acquisition of additional manufacturing capacity.
Fabrinet is aggressively expanding production capacity to ensure manufacturing constraints do not limit growth. Building 10 at its Chonburi campus is expected to add roughly 2 million square feet, while additional manufacturing space has been added at Pinehurst and Nava Nakorn. Fabrinet also acquired a roughly 130,000-square-foot Santa Clara facility to expand its new-product-introduction capabilities. FN estimates Building 10 alone could eventually add roughly $3-$3.5 billion of revenue capacity, taking overall capacity toward $8.5-$9.3 billion. Together with Nava Nakorn, Santa Clara and two potential additional Chonburi factories, Fabrinet estimates its planned footprint could ultimately support roughly $12.5-$14 billion of annualized revenues.
FN Rides on Strong AI Data-Center Demand
Fabrinet’s data-center business is expanding rapidly. In the fourth quarter of fiscal 2026, data-center revenues jumped 68% year over year and 13% sequentially to $669 million, accounting for 51% of total revenues. Communications infrastructure revenues increased 40% year over year to $413 million. The company is benefiting from accelerating investments in AI clusters and hyperscale data centers, which require increasing amounts of high-speed optical connectivity. Fabrinet manufactures transceivers, DCI products, HPC PCBAs, silicon-photonics products and emerging co-packaged optical solutions.
DCI products, particularly 400ZR and 800ZR, are emerging as one of Fabrinet’s strongest growth engines. The company said DCI reached an annualized revenue run rate of more than $1 billion by the end of fiscal 2026. The opportunity is being driven partly by power constraints at hyperscale data centers. The company expects demand for 400ZR, 800ZR and related technologies to continue increasing significantly over the next several years.
HPC is another rapidly developing opportunity. Fabrinet said multiple programs with a major hyperscaler continued to ramp during the fiscal fourth quarter, while the company is installing additional manufacturing capacity for the customer's next-generation silicon platform and other products. The company is also working with additional hyperscale and quantum-computing customers. These applications increasingly require optical connectivity to move workloads and data between computing systems, making Fabrinet’s combination of electronics and optical manufacturing capabilities particularly relevant.
Growth is not limited to AI data centers. Communications infrastructure revenues climbed 40% year over year in the fiscal fourth quarter, supported by telecom systems, satellite communications and components. Low-earth-orbit satellite products are another expanding niche. Fabrinet has been manufacturing products for this market for several years and has two major customers. Management described the segment as significant and growing relatively quickly.
FN’s Earnings Estimate Revision Shows Steady Trend
The Zacks Consensus Estimate for first-quarter fiscal 2027 earnings is pegged at $4.19 per share, unchanged over the past 30 days, suggesting 43.5% growth from the figure reported in the year-ago quarter.
Fabrinet Price and Consensus
Fabrinet price-consensus-chart | Fabrinet Quote
The consensus mark for fiscal 2026 earnings is pegged at $18.56 per share, unchanged over the past 30 days, suggesting 31.7% growth from fiscal 2026’s reported figure.
Fabrinet Shares are Overvalued
Fabrinet shares are overvalued, as suggested by a Value Score of C. The FN stock is trading at price/cash flow (P/CF) multiple of 56.42 compared with the broader sector’s 20.97.
FN shares are trading at a premium compared with peers, including TTM Technologies, Jabil and Flex. Shares of TTM Technologies, Jabil and Flex are trading at a P/CF multiple of 42.31, 17.82 and 26.91, respectively.
FN Stock’s Valuation
Image Source: Zacks Investment Research
Here’s Why FN Stock is a Hold Now
Fabrinet’s growth prospects remain compelling, supported by accelerating demand for AI-driven data-center connectivity, DCI, HPC and next-generation optical technologies. The company’s expanding manufacturing footprint should help it capture rising opportunities from hyperscalers and networking customers while supporting continued revenue growth. Although customer concentration, margin pressure and elevated capital spending remain concerns, Fabrinet’s strong positioning in high-speed optical manufacturing and increasing exposure to AI infrastructure provide meaningful long-term upside.
Fabrinet currently has a Zacks Rank #2 (Buy), suggesting that it may be wise for investors to start accumulating the stock right now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.