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Investing.com -- JP Morgan upgraded Fabrinet to Overweight from Neutral, saying the recent pullback in the stock after earnings offers an entry point into long-term growth tied to artificial intelligence and datacom demand.
The brokerage said near-term disappointment over the pace of customer ramps and supply shortages weighed on shares, but those issues are unlikely to affect Fabrinet’s position with major clients.
The company is a key supplier in 1.6 terabit transceivers for Nvidia, where JPMorgan sees a $1.5 billion market by 2026, and could capture close to $500 million in revenue.
Fabrinet is also expected to benefit from Ciena’s modem business, which JPMorgan estimates could reach the “multi-hundreds of millions” in revenue from 2026, and from Amazon’s high-performance computing push.
The note said Amazon’s Trainium opportunity alone could be worth $1.5 billion, with a further $2 billion-plus tied to optical transceivers.
JP Morgan added that Fabrinet’s management is weighing faster expansion of manufacturing capacity, citing demand expectations through 2027. It raised its price target to $345 from $318, applying a 21 times earnings multiple on its 2027 forecast.
Large concurrent program ramps with Nvidia, Ciena and Amazon set up Fabrinet for material upside to estimates, according to JP Morgan.