Fabrinet(NYSE: FN) stock saw big sell-offs in Wednesday's trading. The engineering and manufacturing specialist's share price closed out the daily session down 9% and had been down as much as 13.6% earlier in the day's trading.
Fabrinet stock lost ground today after B. Riley downgraded its rating on the stock from neutral to sell. The firm also lowered its one-year price target on the stock to $178 per share, down from its previous target price of $194 per share. Based on today's closing price, B. Riley's new price target on the stock suggests potential downside of 21%.
Is Fabrinet's optics business about to suffer from the loss of bundling with Nvidia?
B. Riley's analysts anticipate that Fabrinet's business will soon see headwinds stemming from weakening traction for product bundles sold in conjunction with Nvidia's graphics processing units (GPUs). The artificial intelligence (AI) leader's GPUs have been in very high demand, and tech components from third parties including Fabrinet have also been bundled with the advanced processors.
But Amazon is now moving to purchase only Nvidia's GPUs and source additional components in-house or through other partners. B. Riley's analysts expect that other cloud hyperscalers, including Microsoft and Meta Platforms, will adopt a similar strategy.
What's next for Fabrinet?
Fabrinet has been seeing strong business performance in conjunction with AI-related demand. With its last financial update, the company guided for revenue between $800 million and $820 million in the current quarter, suggesting growth of roughly 14% year over year at the midpoint of the target range. Meanwhile, the company's midpoint target for adjusted earnings per share calls for growth of roughly roughly 19% annually.
The company should still be able to hit its Q2 guidance ranges, but unbundling headwinds could potentially impact performance further out. The company's recent momentum has been aided by demand connected to Nvidia's GPUs, and erosion on that front could cause investors to assign lower valuation multiples to Fabrinet.
Should you invest $1,000 in Fabrinet right now?
Before you buy stock in Fabrinet, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Fabrinet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $900,893!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of November 18, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
