Equity Research 14 November 2025 IT Hardware and Communications Equipment Asia Trip Takeaways: AI Upside, Particularly for Custom ASICs; PCs and Smartphones Stable We spent a few days in Taiwan meeting with companies across the supply chain for Servers, Networking, PC, and Smartphones. The most positive takes were on custom ASICs, which impacts several of our names in the EMS space where we recommend CLS, JBL, and FLEX. We met with a number of companies during our two days in Taiwan. Overall, the takes for ...

Core Insights - U.S. stocks experienced a rally in Q3, supported by the Federal Reserve's interest rate cut and steady economic data, with the Russell Midcap® Growth Index increasing by 2.78% [3][17] - The Wasatch U.S. Select Fund underperformed, declining by -1.93%, primarily due to concentrated holdings in stocks that faced slower revenue growth [3][4][17] Fund Performance Analysis - The Fund's performance was negatively impacted by a few concentrated stock holdings that reported slower revenue growth, leading to significant declines in their stock prices [4][6] - The investment strategy focuses on high-quality, long-duration growth companies, which faced headwinds as low-quality stocks gained favor in the market [7] Key Detractors - BellRing Brands, Inc. (BRBR) was the largest detractor, with concerns over competition in the protein shake category; however, the long-term outlook remains positive due to category growth potential [8] - Shift4 Payments, Inc. (FOUR) faced stock price declines despite solid organic revenue growth, attributed to macroeconomic concerns and investor sentiment following its acquisition of Global Blue [9] - Inspire Medical Systems, Inc. (INSP) was sold during the quarter after management downgraded guidance due to delays in product rollout, raising execution concerns [10] Top Contributors - Medpace Holdings, Inc. (MEDP) was the top contributor, with strong revenue and earnings growth, raising full-year guidance despite a slowdown in biotech funding [11] - Fabrinet (FN) benefited from strong product adoption, particularly in data centers linked to AI, although the investment is not solely based on AI themes [12] - Nova Ltd. (NVMI) also contributed positively, with a strong track record in semiconductor manufacturing, benefiting from increasing complexity in the industry [13] Future Outlook - The Fund remains committed to its investment philosophy, focusing on high-quality growth companies despite recent underperformance [14] - The fundamentals of the companies within the Fund are encouraging, with strong earnings growth expected to drive return potential over a three- to five-year horizon [15]

Investment Rating - The report maintains an "Outperform" rating for the communication industry, indicating an expected growth exceeding the benchmark index by over 10% [39]. Core Insights - North American optical communication manufacturers have released positive earnings guidance for the upcoming quarter, with Coherent reporting Q1 2026 revenue of $1.58 billion, a 17% year-over-year increase, driven primarily by data center optical communication [14][17]. - Lumentum's Q1 2026 revenue reached $530 million, up 58% year-over-year, with strong demand for 800G and 1.6T high-speed optical modules, leading to anticipated price increases starting in 2026 [15][17]. - Fabrinet reported Q1 2026 revenue of $980 million, a 22% year-over-year increase, with significant growth in the telecom optical communication sector, particularly driven by DCI [16][17]. - The North American AI market demand is expected to grow, with NVIDIA's GB300 shipments boosting demand for 1.6T optical modules, suggesting a strong revenue increase for leading optical module manufacturers in Q4 [17]. - The launch of the ScaleX640 by Zhongke Shuguang at the Wuzhen Internet Conference showcases advancements in domestic ultra-node technology, with a design that significantly enhances cabinet density and cooling efficiency [18]. Summary by Sections Industry Trends - North American optical communication companies are experiencing robust order growth, particularly in the data center segment, with a focus on 800G and 1.6T technologies [14][17]. - The supply of optical chips remains a bottleneck, prompting companies to expand production capacity to meet future demand [14][17]. Company Performance - Coherent's data center business is expected to accelerate growth, with a projected 10% quarter-over-quarter increase in the next quarter [14]. - Lumentum anticipates a 20% quarter-over-quarter revenue growth in the upcoming quarter, excluding certain orders [15]. - Fabrinet expects Q2 revenue to reach approximately $1.1 billion, driven by growth across various segments including traditional telecom and DCI [16]. Market Overview - The overall market saw an increase during the week of November 3-7, 2025, with the Shanghai Composite Index rising by 1.08% and the communication index increasing by 0.92% [19]. - The optical module sector led the weekly gains with a 4.37% increase, indicating strong investor interest [19]. Recommended Companies - Key companies to watch include those in the optical module sector such as Zhongji Xuchuang and Tianfu Communication, as well as domestic ultra-node manufacturers like ZTE and Unisoc [19].

Group 1: Robinhood Markets, Inc. (HOOD) - The company has a Zacks Rank of 1 and a Momentum Score of A [1] - The Zacks Consensus Estimate for its current year earnings increased by 21.9% over the last 60 days [1] - Robinhood's shares gained 19.6% over the last three months, while the S&P 500 declined by 5.9% [1] Group 2: Fabrinet (FN) - The company has a Zacks Rank of 1 and a Momentum Score of A [2] - The Zacks Consensus Estimate for its current year earnings increased by 8.6% over the last 60 days [2] - Fabrinet's shares gained 40.5% over the past three months, compared to the S&P 500's decline of 5.9% [2] Group 3: TE Connectivity plc (TEL) - The company has a Zacks Rank of 1 and a Momentum Score of A [3] - The Zacks Consensus Estimate for its current year earnings increased by 7.7% over the last 60 days [3] - TE Connectivity's shares gained 24.4% over the last three months, while the S&P 500 declined by 5.9% [3]

Group 1 - Tactile Systems Technology, Inc. (TCMD) has seen a 29% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [1] - Harmony Gold Mining Company Limited (HMY) has experienced a 12.7% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [1] - Robinhood Markets, Inc. (HOOD) has reported a 21.9% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [2] - Fabrinet (FN) has seen an 8.6% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [2] - TE Connectivity plc (TEL) has experienced a 7.7% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [3]

Core Insights - The Zacks Electronics - Miscellaneous Components industry is experiencing growth due to automation and increased spending in sectors like semiconductors, automobiles, and healthcare, with companies like TE Connectivity, nVent Electric, and Fabrinet positioned to benefit from AI and IoT advancements [1][3][4] - However, the industry faces challenges from global macroeconomic conditions, end-market volatility, higher tariffs, and geopolitical tensions, particularly between the U.S. and China [1][5] Industry Overview - The industry includes companies that provide various electronic components and accessories, serving markets such as telecommunications, automotive electronics, medical devices, and consumer electronics [2] - Key customers are original equipment manufacturers, independent distributors, and electronic manufacturing service providers [2] Trends Impacting the Industry - Automation is a significant driver, with demand for faster and more efficient electronics leading to increased use of control systems and collaborative robots [3] - Miniaturization in semiconductor manufacturing is creating strong demand for advanced packaging and new manufacturing materials [4] - Geopolitical tensions, particularly the U.S.-China trade restrictions, are negatively impacting the industry, especially regarding semiconductor supply [5] Industry Performance - The Zacks Electronics - Miscellaneous Components industry ranks 62, placing it in the top 25% of over 250 Zacks industries, indicating bullish near-term prospects [6][7] - The industry's earnings estimates have increased by 9.4% since June 30, 2025, reflecting positive sentiment among analysts [8] Stock Market Performance - The industry has outperformed the S&P 500 and the broader Zacks Computer and Technology sector, appreciating 35.3% over the past year compared to the S&P 500's 14.2% and the sector's 24.9% [10] Current Valuation - The industry is currently trading at a forward P/E ratio of 23.45, slightly above the S&P 500's 23.30 but below the sector's 28.61 [13] Notable Companies - **TE Connectivity**: Expected to benefit from strong demand in AI and energy applications, with a projected 11% organic sales growth to $4.5 billion in Q1 fiscal 2026 [17][18] - **nVent Electric**: Anticipates 31-33% sales growth in Q4 2025, driven by acquisitions and strong data center orders [22][23] - **Fabrinet**: Forecasts 29% year-over-year revenue growth in Q2 fiscal 2026, with strong performance in non-optical communications [26][27]

Core Insights - The article emphasizes the focus on growth and momentum stocks that are reasonably priced and expected to outperform the market in the long term [1] - It highlights a significant investment opportunity, noting that the S&P 500 increased by 367% and the Nasdaq by 685% from March 2009 to 2019, indicating a strong recovery from the financial crisis [1] Investment Strategy - The investment strategy involves long-term investment in quality stocks, with the use of options to enhance returns [1] - The approach aims to assist investors in generating wealth through high-quality growth stocks [1]

Core Insights - The article emphasizes the focus on growth and momentum stocks that are reasonably priced and expected to outperform the market in the long term [1] - It highlights a significant investment opportunity identified by David, who advised buying at the market bottom in March 2009, leading to substantial gains in major indices [1] Investment Strategy - David is characterized as a long-term investor who prioritizes quality stocks and employs options as part of his investment strategy [1] - The S&P 500 saw an increase of 367% and the Nasdaq increased by 685% from 2009 to 2019, showcasing the potential for high returns in growth stocks [1] Investor Guidance - The article aims to assist investors in making money through investments in high-quality growth stocks [1]

Core Viewpoint - Fabrinet (FN) has been upgraded to a Zacks Rank 1 (Strong Buy), indicating a positive outlook on its earnings estimates, which significantly influence stock prices [1][3]. Earnings Estimates and Stock Price Impact - The Zacks rating system is based on changes in earnings estimates, which are strongly correlated with stock price movements, particularly due to institutional investors' reliance on these estimates for valuation [4][6]. - An increase in earnings estimates typically leads to higher fair value for a stock, prompting institutional investors to buy or sell, thus affecting stock prices [4]. Company Performance and Outlook - The upgrade for Fabrinet suggests an improvement in its underlying business, which should lead to higher stock prices as investors respond positively to this trend [5]. - For the fiscal year ending June 2026, Fabrinet is expected to earn $13.29 per share, unchanged from the previous year, but the Zacks Consensus Estimate has increased by 13.6% over the past three months, indicating a positive revision trend [8]. Zacks Rating System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [7]. - Fabrinet's upgrade to Zacks Rank 1 places it in the top 5% of Zacks-covered stocks, suggesting a strong potential for market-beating returns in the near term [10].

Growth investors focus on stocks that are seeing above-average financial growth, as this feature helps these securities garner the market's attention and deliver solid returns. However, it isn't easy to find a great growth stock.That's because, these stocks usually carry above-average risk and volatility. In fact, betting on a stock for which the growth story is actually over or nearing its end could lead to significant loss.However, it's pretty easy to find cutting-edge growth stocks with the help of the Z ...