FN's AI Optical Growth Accelerates: Can It Challenge LITE & AAOI?

Fabrinet FN is benefiting from accelerating demand for high-speed optical connectivity as hyperscalers expand artificial intelligence (AI) and cloud data-center infrastructure. The company manufactures optical and interconnect products used in data-center networking, data-center interconnect (“DCI”), high-performance computing (“HPC”) and other AI infrastructure applications. Strong demand across these areas is strengthening Fabrinet’s position in optical networking and expanding its opportunity against Lumentum Holdings LITE and Applied Optoelectronics AAOI, both of which are benefiting from rising bandwidth requirements across AI data centers.

Fabrinet’s data-center business has become its largest revenue category. In the fourth quarter of fiscal 2026, data-center revenues surged 68% year over year and 13% sequentially to $669 million, accounting for 51% of total revenues. DCI was the largest contributor to growth, with its annualized revenue run rate exceeding $1 billion, while HPC also made a substantial contribution. Fabrinet serves essentially all major DCI players and continues to see strong demand across DCI, transceivers and HPC. Customer forecasts provide visibility through the end of 2027 and beyond, although these forecasts are not firm orders.  

The company is expanding its exposure to high-speed transceivers through hyperscaler-direct and merchant programs. New program ramps are expected to continue through fiscal 2027, adding to growth from existing customers. Fabrinet has delivered 12 consecutive quarters of record revenues and six consecutive quarters of accelerating year-over-year growth. Management indicated that, based on current demand trends, another year of accelerating growth in fiscal 2027 is possible. 

Manufacturing expansion should strengthen Fabrinet’s ability to capture AI infrastructure demand. Building 10 in Chonburi, which is expected to be completed in the first quarter of fiscal 2027, is expected to add roughly $3-$3.5 billion of revenue capacity, potentially lifting total capacity to $8.5-$9.3 billion. Capacity from Nava Nakorn, the new Santa Clara campus and two additional Chonburi facilities could eventually increase Fabrinet’s potential revenue capacity to $12.5-$14 billion over the coming years. Optical cross-connect (OCS) represents another potential growth opportunity. Fabrinet believes OCS fits well with its existing manufacturing capabilities because the technology is similar to products it already produces, potentially giving the company an early advantage as optical switching adoption expands in AI clusters.

FN Faces Tough Competition

Lumentum Holdings is strengthening its AI data-center position through cloud transceivers, pump lasers, electro-absorption-modulated lasers, continuous-wave lasers, OCS and emerging near-packaged optics/co-packaged optics solutions. Its systems revenues jumped 123% year over year and 30% sequentially to $357 million in the fourth quarter of fiscal 2026, driven by cloud transceivers and OCS. LITE began shipping 1.6T transceivers and expects adoption to intensify through calendar 2027. Pump-laser shipments surged more than 80% year over year and Lumentum expects shipments to increase fourfold over the next several quarters amid strong AI training and inference demand. 

Applied Optoelectronics is expanding its AI data-center exposure through 400G, 800G and 1.6T transceivers. In the second quarter of 2026, data-center revenues surged 140.4% year over year to $107.7 million, while 800G revenues increased more than tenfold year over year. The company has more than $200 million of 1.6T orders in hand and expects more than $70 million of 1.6T revenues in fourth-quarter of 2026. Customer demand remains above available capacity, while AAOI expects monthly 800G and 1.6T production capacity to exceed 650,000 units by year-end 2026 and 930,000 units by 2027-end. Its vertically integrated laser manufacturing and expanding U.S. footprint further intensify competition for AI optical demand.

FN’s Share Price Performance, Valuation & Estimates

Shares of Fabrinet have plunged 10.5% year to date, underperforming the broader Zacks Computer and Technology sector’s 18.2% growth.

FN Stock’s Price Performance

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FN stock is trading at a premium, with forward 12-month price/earnings of 21.14X compared with the broader sector’s 20.74X. Fabrinet has a Value Score of C.

FN’s Valuation

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The Zacks Consensus Estimate for Fabrinet’s earnings is currently pegged at $4.19 per share, up by 17 cents over the past 30 days, suggesting 43.49% growth.

Fabrinet Price and Consensus

Fabrinet price-consensus-chart | Fabrinet Quote

Fabrinet currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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