FN Poised to Gain From Robust AI Optics Expansion in 2026: Is There Further Growth Potential?

Fabrinet Capitalizes on Expanding AI Infrastructure Demand

Fabrinet (FN) is benefiting from a surge in AI infrastructure projects, with several initiatives advancing simultaneously. This trend is significant as it diversifies the company’s customer base, ensures more consistent utilization of resources, and offers opportunities for operational efficiency—even as currency fluctuations present challenges.

In the short term, Fabrinet’s momentum is driven by robust performance in telecom and Datacenter Interconnect (DCI), a ramp-up in High-Performance Computing (HPC), and a rebound in datacom as supply chain issues subside.

Three Growth Drivers Fueling FN’s AI Infrastructure

Company leadership highlights synchronized growth across telecom, DCI, datacom, and HPC, resulting in a broad array of expansion opportunities that can reinforce one another. This diversification helps stabilize revenue, as these markets do not all reach their peaks at the same time.

Entering this growth phase, Fabrinet reported fiscal 2025 revenue of $3.42 billion, marking an 18.6% increase, with optical communications accounting for 76.6% of total sales. In the second quarter of fiscal 2026, optical communications revenue climbed to $832.6 million, a 29% year-over-year rise, fueled by strong demand from leading clients.

• Telecom revenue reached $412.2 million, up 66.2% year over year.
• DCI modules generated $142.2 million, a 42.1% increase from the previous year.

Both telecom and DCI segments are viewed as stable, with DCI expected to accelerate further in the upcoming fiscal quarter.

HPC Segment Emerges as a Key Growth Catalyst

In the fiscal second quarter, the HPC division contributed $85.6 million. Fabrinet anticipates that this program will surpass $150 million in quarterly revenue within the next few quarters. The company serves as a certified secondary supplier for an AWS-related initiative, with additional growth potential if it continues to outperform in cost, quality, and delivery as volumes increase.

Meanwhile, datacom revenue stood at $278.1 million, representing a 7% decline year over year but a 2% sequential improvement as supply constraints eased following the approval of a second-source EML laser.

Investors are watching to see if the relaxation of these constraints in the third fiscal quarter will enable greater shipments of 200G per lane optics, which are essential for building out 800G and 1.6T networks. The outcome will depend on how quickly the new supplier can scale and whether production yields and throughput can sustain ongoing growth.

Strategic Capacity Expansion Positions FN for Future Growth

Fabrinet is increasing its production capacity without incurring debt, thereby minimizing potential bottlenecks as its optical and computing programs expand. The new Building 10 spans 2 million square feet, with 250,000 square feet expected to be operational by the end of June 2026, and full completion targeted for later that year. Additionally, the Pinehurst facility conversion adds 120,000 square feet, projected to support over $150 million in annual revenue capacity, depending on the product mix.

These initiatives are expected to support Fabrinet’s long-term revenue growth. For the fiscal third quarter, the company forecasts revenue between $1.15 billion and $1.20 billion. Adjusted earnings per share are projected to range from $3.45 to $3.60, with sequential gains anticipated in telecom, datacom, and HPC segments.

Fabrinet Price and Analyst Consensus

Analyst Ratings and Alternative Stock Picks

Fabrinet currently holds a Zacks Rank #2 (Buy).

Other top-rated stocks in the Zacks Computer and Technology sector include Advanced Energy Industries (AEIS), Seagate (STX), and Western Digital (WDC), all of which have a Zacks Rank #1 (Strong Buy).

• Projected long-term earnings growth: Advanced Energy Industries (19.36%), Seagate (38.04%), Western Digital (51.11%).
• Share price appreciation over the past year: Advanced Energy Industries (215.1%), Seagate (292.7%), Western Digital (486.7%), all surpassing Fabrinet’s 192.1% return.

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