20 Industrial Stocks Already Riding the AI Wave

2. Fabrinet (NYSE:FN)

Number of Hedge Fund Holders: 33

YTD Return as of August 1: 16%

Approximate Percentage Revenue from AI: 37%

Fabrinet (NYSE:FN) provides optical packaging and precision optical, electro-mechanical, and electronic manufacturing services. The company makes fiber-optic cables that are used to power telecommunications, AI data centers, and even the Internet across the world. Even though demand for telecom remains relatively soft, the AI buzz has served to offset these concerns. The datacom business of the company, which revolves around cable provision for AI data centers, has grown rapidly in the past two years. Starting from just $88 million per quarter in 2022, the firm recently revealed that datacom revenue had jumped to more than $305 million.

In the third quarter earnings call, Seamus Grady, the CEO of Fabrinet (NYSE:FN), underlined how this 150% jump in datacom revenue had benefited from the rise in demand for 800 gigs technology for AI applications. NVIDIA, one of the biggest winners of the AI craze, is the flagship customer for Fabrinet. The latter powers the data centers of the former with optical cables and electro-mechanical manufacturing services.

In its Q1 2024 investor letter, First Pacific Advisors, an asset management firm, highlighted a few stocks and Fabrinet (NYSE:FN) was one of them. Here is what the fund said:

“Fabrinet (NYSE:FN) is a contract manufacturer of components and modules. The company has a dominant position in hard-to-replicate precision-manufacturing technologies and an enviable track record of execution. The majority of Fabrinet’s sales are to networking equipment manufacturers but it has been successfully diversifying into the data center, industrial, auto, and medical end-markets. FN’s stock jumped after reporting June 2023 earnings – datacenter sales increased 50% sequentially and more than 100% over the previous year, driven by their 800-gigabyte transceivers for Artificial Intelligence applications. The company also announced that Nvidia is a 10%+ customer.

Fabrinet was a top-five holding in the Fund before its June 2023 earnings announcement. Since then, the stock has appreciated considerably and we have trimmed in keeping with our risk management policies. Given the growth in its forward earnings estimates, Fabrinet trades in line with its historical earnings multiples and remains a top five position for us.”