Can Data Center Interconnect Fuel Fresh Upside for FN Stock?

Core Insights - Fabrinet (FN) is increasing its focus on Data Center Interconnect (DCI), which is expected to grow as hyperscalers expand infrastructure to support AI and cloud workloads [1][4] - DCI revenues reached $107 million in Q4 fiscal 2025, representing 26% of telecom revenues and 12% of total revenues, indicating a strong growth trajectory [2][8] - The Zacks Consensus Estimate for total revenues in Q1 fiscal 2026 is $929.74 million, reflecting an 11.7% year-over-year growth, with Optical communications revenue expected to rise by 17.3% [3] Revenue and Growth - DCI is now tracked as a standalone sub-segment within optical communications, highlighting long-term confidence in its growth [2] - The complexity in design and integration for next-generation transceivers (800 GB and 1.6 TB) is anticipated to create premium opportunities for high-precision suppliers like Fabrinet [2] Competitive Landscape - Fabrinet faces competition from Coherent (COHR) and Lumentum (LITE), both of which are enhancing their DCI offerings [5] - Coherent is investing in high-speed transceivers, while Lumentum focuses on compact, thermally efficient modules [5] Stock Performance and Valuation - Fabrinet's shares have increased by 62.9% year-to-date, outperforming the Zacks Electronics-Miscellaneous Components industry and the Computer and Technology sector [6] - The stock is currently trading at a forward Price/Sales ratio of 3.01X, compared to the industry's 2.08X, indicating a premium valuation [10] Earnings Estimates - The Zacks Consensus Estimate for Fabrinet's Q1 fiscal 2026 earnings is $2.83 per share, reflecting an 18.41% year-over-year growth [13]