Core Insights - The Wasatch Small Cap Growth Strategy experienced a decline of -3.17% in Q3 2025, underperforming the Russell 2000 Growth Index which gained 12.19% during the same period [1] - Fabrinet (NYSE:FN) was highlighted as a top stock, achieving a one-month return of 13.02% and a remarkable 98.16% increase over the last 52 weeks, closing at $470.89 per share with a market capitalization of $16.871 billion [2][3] Company Performance - Fabrinet generated $978 million in revenue for fiscal Q1 2026, marking a 22% year-over-year increase and an 8% rise from the previous quarter [4] - The company is experiencing strong adoption of its products across various industries, particularly in data centers, which are linked to the AI sector, although the investment strategy does not focus solely on AI themes [3] Hedge Fund Interest - Fabrinet was held by 44 hedge fund portfolios at the end of Q3 2025, an increase from 32 in the previous quarter, indicating growing interest among institutional investors [4]

Core Insights - Fabrinet is positioned in a rapidly growing sector, particularly in telecom and data center interconnect (DCI) markets [1] Group 1: Growth Areas - Fabrinet has recently started breaking out its telecom and DCI segments, allowing for better visibility into growth drivers [1] - The company is experiencing strong growth in specific products and solutions within these segments [1] Group 2: Customer Base - Fabrinet's customer base is diverse, contributing to the robust growth in its telecom and DCI sectors [1] - Key customers are driving the strong growth, indicating a healthy demand for Fabrinet's offerings [1]

Summary of Conference Call Company Overview - The conference call features Fabrinet, a company involved in IT hardware and communications equipment, with a focus on optical and transceiver manufacturing. Key Industry Insights Telecom and Data Center Interconnect (DCI) - Fabrinet has recently separated DCI from its telecom reporting to provide clearer visibility on growth, driven primarily by the Datacom sector [4][14] - DCI products, particularly 400ZR and 800ZR, are experiencing strong growth, with five main customers contributing to this segment [4][5] - The demand for DCI is robust, with expectations for sustainable growth over the coming years [15][14] - Traditional telecom business is growing but at a more stable rate compared to the exponential growth seen in DCI [20][24] High-Performance Computing (HPC) - Fabrinet has initiated a new HPC category, primarily serving AWS, with a revenue of $15 million from qualification volumes [28][30] - The company aims to establish a cost-competitive solution in the HPC market, with potential for significant growth [31][30] - The HPC business is expected to ramp up, with plans for additional product offerings beyond PCBAs [100][105] Capacity Expansion - Fabrinet is constructing Building 10, which will add $2.5 billion in revenue capacity, with a current run rate of $4.5 billion [39][40] - The new facility will be flexible, allowing for quick repurposing based on customer needs [41][44] - The capital expenditure for Building 10 is approximately $130 million, funded from existing cash reserves [45][46] Datacom Demand - Demand for transceivers in the Datacom sector is described as insatiable, particularly with the rise of AI data centers [69][70] - Fabrinet is producing advanced transceivers (200G, 800G, and 1.6T) but faces component shortages that limit production capacity [71][73] - The company is exploring opportunities with various customers, including traditional companies and hyperscalers [78][79] Automotive Sector - Fabrinet's automotive business is stable, with growth in EV charging infrastructure and LiDAR technology [94][95] - The company has captured a significant share of the LiDAR market, positioning itself for future growth as the technology gains traction [95] Financial Performance and Strategy - Fabrinet aims for a gross margin range of 12.5%-13%, with low operating expenses around 1.6%-1.7% of revenue [93][94] - The company has a strong financial position with no debt and approximately $1 billion in cash, allowing for self-funded growth [45][46] - Fabrinet's growth strategy focuses on maintaining a compound annual growth rate of 16% over the past decade, with plans to continue this trend [130][130] Additional Considerations - The company emphasizes the importance of performance and customer satisfaction in securing additional business opportunities [106][107] - Fabrinet is committed to long-term planning, utilizing an eight-quarter rolling revenue forecast to guide its growth strategy [129][130] - The company is open to diversifying its product offerings beyond optical solutions, depending on customer demand [85][86]

Summary of J.P. Morgan Research on AI Data Center Opportunities Industry Overview - The report discusses the expanding demand for AI data centers and the associated networking technologies, particularly focusing on the data center interconnect (DCI) market, which is estimated to have a total addressable market (TAM) of over $10 billion [1][13]. Key Concepts - **Scale-Up**: Refers to XPU-to-XPU connectivity within a tightly coupled node or local cluster. - **Scale-Out**: Involves the fabric linking multiple nodes across racks and pods within a single data center. - **Scale-Across**: Focuses on enabling distributed training between geographically separated data centers. - **Multi-Rail**: Increases fiber density to expand DCI capacity and support new use cases [1]. Market Opportunities - The report estimates that Scale-Across and Multi-Rail opportunities could represent a combined TAM of over $10 billion for the DCI market, matching the current DCI TAM [1]. - A specific example of Scale-Across involves a U.S. hyperscaler interconnecting two data centers over approximately 100 km, enabling 20-25 Pb/s of aggregate AI training traffic [5][7]. Financial Projections - The DCI content for Scale-Across opportunities could range from $300 million to $500 million per DCI connection, excluding optical fiber cable and connectors [11]. - The revenue opportunity per DCI connection is broken down as follows: - **Coherent Pluggable Modules**: 55,000 units at an ASP of $4,000 to $6,000. - **Reconfigurable Line Systems (RLS)**: 860 units at an ASP of $20,000 to $50,000. - **Ethernet Switches**: 1,720 units at an ASP of $700 to $1,000 [11][12]. Company Positioning - Companies best positioned for the DCI opportunity include: - **Networking**: Arista and Cisco. - **Optical**: Ciena, Coherent, Corning, Fabrinet, and Lumentum [15]. Infrastructure Challenges - Increasing fiber density requirements are driving the need for innovation in existing infrastructure rather than simply adding more equipment [17]. - Traditional in-line amplifier (ILA) huts are becoming bottlenecks due to their limited capacity, necessitating the development of multi-rail technology to increase fiber pair capacity from 16 to 128 or even 256 pairs [23][33]. Future Projections - Lumen's ambitious plan to expand its network fiber miles from 12 million in 2022 to 47 million by 2028 could represent a significant opportunity, with an estimated total revenue opportunity of $200 million to $300 million for the incremental Lumen opportunity alone [29][33]. Conclusion - The report highlights significant growth potential in the AI data center market, driven by technological advancements and increasing demand for high-capacity interconnect solutions. Companies involved in networking and optical technologies are well-positioned to capitalize on these emerging opportunities [1][15].

Core Viewpoint - Fabrinet (FN) has shown a downtrend recently, losing 8.1% over the past four weeks, but a hammer chart pattern suggests a potential trend reversal as buying interest may be emerging [1][2]. Technical Analysis - The hammer chart pattern indicates a possible bottoming out, suggesting that selling pressure may be exhausting, which could lead to a reversal in the stock's downtrend [2][5]. - A hammer pattern forms when there is a small candle body with a long lower wick, indicating that despite a new low, buying interest has emerged to push the stock price up towards the opening price [4][5]. - This pattern can occur across various timeframes and is utilized by both short-term and long-term investors [5]. Fundamental Analysis - There has been a positive trend in earnings estimate revisions for FN, with a 9.8% increase in the consensus EPS estimate for the current year over the last 30 days, indicating that analysts expect better earnings than previously predicted [7][8]. - The company currently holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks, which typically outperform the market [9][10]. - The Zacks Rank serves as a timing indicator, suggesting that FN's prospects are beginning to improve, reinforcing the potential for a turnaround [10].

Core Viewpoint - Fabrinet, a leading provider of advanced optical packaging and precision manufacturing services, will present at the Barclays 23rd Annual Global Technology Conference in San Francisco on December 10, 2025 [1][2]. Company Overview - Fabrinet specializes in advanced optical packaging and precision optical, electro-mechanical, and electronic manufacturing services for original equipment manufacturers of complex products, including optical communication components, automotive components, medical devices, and industrial lasers [3]. - The company offers a comprehensive range of capabilities across the entire manufacturing process, including process design, supply chain management, manufacturing, advanced packaging, integration, final assembly, and testing [3]. - Fabrinet operates engineering and manufacturing facilities in Thailand, the United States, China, and Israel, focusing on high complexity products in various mixes and volumes [3].

Core Viewpoint - Growth investors seek stocks with above-average financial growth, but identifying such stocks can be challenging due to their inherent risks and volatility [1] Group 1: Company Overview - Fabrinet (FN) is highlighted as a recommended growth stock with a favorable Growth Score and a top Zacks Rank [2] Group 2: Earnings Growth - Fabrinet has a historical EPS growth rate of 23.7%, with projected EPS growth of 30.6% this year, surpassing the industry average of 26.7% [5] Group 3: Cash Flow Growth - The year-over-year cash flow growth for Fabrinet is 12.6%, significantly higher than the industry average of -12.1% [6] - The annualized cash flow growth rate for Fabrinet over the past 3-5 years is 20.6%, compared to the industry average of 5.4% [7] Group 4: Earnings Estimate Revisions - The current-year earnings estimates for Fabrinet have increased, with the Zacks Consensus Estimate rising by 9.8% over the past month [9] Group 5: Investment Positioning - Fabrinet has earned a Growth Score of B and a Zacks Rank 2 due to positive earnings estimate revisions, positioning it well for potential outperformance [11]

Group 1: Fund Performance - The FPA Queens Road Small Cap Value Fund returned 7.46% in Q3 2025, underperforming the Russell 2000 Value Index which returned 12.60% [1] - For the first three quarters of 2025, the fund achieved a return of 13.77%, outperforming the index's return of 9.04% [1] Group 2: Fabrinet Overview - Fabrinet (NYSE:FN) specializes in optical packaging and precision manufacturing services, with a one-month return of -4.85% and a 52-week gain of 76.79% [2] - As of November 24, 2025, Fabrinet's stock closed at $462.67 per share, with a market capitalization of $16.576 billion [2] Group 3: Fabrinet's Market Position - Fabrinet dominates its niche in optical networking equipment and has shown impressive historical revenue growth and increasing operating margins [3] - The company has a significant customer in Nvidia, which accounts for 10% of its revenue, and has seen its stock price double since April due to rising expectations for data center spending [3] - Fabrinet is expected to continue being a "compounder" in the market, with ongoing demand for high bandwidth networking [3] Group 4: Revenue and Hedge Fund Interest - Fabrinet generated $978 million in revenue for fiscal Q1 2026, marking a 22% year-over-year increase and an 8% increase from the previous quarter [4] - The number of hedge funds holding Fabrinet decreased from 38 to 32 from the previous quarter [4]

Summary of Key Points from the Conference Call Industry Overview - **Industry Focus**: IT Hardware and Communications Equipment, specifically custom ASICs, servers, PCs, and smartphones [1][2][3] Core Insights - **Custom ASICs Growth**: Strong positive sentiment regarding custom ASICs, particularly in AI servers, with expectations for a better long-term compound annual growth rate (CAGR) for general-purpose servers [2][4] - **Power Solutions**: Increasing importance of power management solutions in AI racks, with companies focusing on integrating full compute racks [2][9] - **PC and Smartphone Stability**: The PC market appears stable, while iPhone production remains unchanged, with no significant upward revisions expected [2][13] Company-Specific Insights Celestica Inc. (CLS) - **TPU Contribution**: CLS is expected to be the primary EMS partner for TPU, with projections indicating that TPU will represent 70-75% of the Enterprise segment by 2025 [5][21] - **Revenue Estimates**: FY26 revenue estimates for CLS's Enterprise segment have been increased from $2,752 million to $3,782 million, with an overall price target raised to $359 [5][16] - **Growth Projections**: Revenue growth projected at a CAGR of 30.3% from 2024 to 2027, with net income expected to reach $1,326 million by 2027 [21] Fabrinet (FN) - **Market Position**: FN is positioned as a second source for TPU, with revenue estimates for FY26 increased from $146 million to $243 million due to a larger total addressable market (TAM) [11][27] - **Revenue Growth**: Projected revenue growth at a CAGR of 23.5% from 2025 to 2028, with net income expected to reach $699 million by 2028 [27] Jabil (JBL) - **Test Equipment Growth**: JBL is expected to benefit from growth in the test equipment market for GPUs, with FY26 estimates for semi-cap equipment rising to $2.9 billion from $2.5 billion in FY25 [6][15] Flex Ltd (FLEX) - **Power Systems Exposure**: FLEX has significant exposure to power systems, with 25-30% of its $6.5 billion data center revenues in FY26 coming from these solutions [12][15] - **Market Position**: Expected to see upside in business throughout 2026, particularly in full rack manufacturing [5][15] Risks and Challenges - **Celestica (CLS)**: Risks include customer concentration, loss of programs to competition, and potential slowing of AI spending [18][68] - **Fabrinet (FN)**: Risks include a slowdown in AI spending, lower outsourcing activity, and increased competition [20][74] Valuation and Price Targets - **Celestica Inc. (CLS)**: Price target set at $359 based on a 32x FY27 EPS of $11.21, reflecting a positive mix shift and rising ODM/HPS content [17][67] - **Fabrinet (FN)**: Price target set at $499 based on a 30x FY27 EPS of $16.64, accounting for the AI investment cycle [19][73] Conclusion - The IT Hardware and Communications Equipment industry is experiencing growth driven by custom ASICs and AI-related investments, with specific companies like CLS and FN positioned to benefit significantly. However, potential risks related to market dynamics and competition remain a concern.

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]