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Fabrinet (FN +17%) gaps up to record highs today after delivering impressive Q4 (Jun) results and energetic Q1 (Sep) guidance. FN operates in the optical product manufacturing field, delivering advanced optical packaging and electronic manufacturing services or EMS to original equipment manufacturers within several verticals, from automotive to medical and cloud computing. It competes with several other EMS players, including Jabil (JBL), Flex (FLEX), and Sanmina (SANM). With NVIDIA (NVDA) being one of FN's largest customers, comprising around an eighth of total sales last year, FN has been on a steady upward climb this year. While there were some concerns, such as potential cracks in the economy, leading into FN's Q4 report, another round of upbeat numbers was more than sufficient to squash these fears.

• To illustrate FN's consistently uplifting quarterly results, its Q4 adjusted EPS of $2.41, a 30.3% improvement yr/yr, and revenue of $753.26 mln, a 14.8% jump, marked the fourth consecutive quarter in which both top and bottom-lines have reached records. Adjusted earnings continued to grow at a more rapid pace than revenue, illuminating management's constant focus on cost-cutting.
• Demand was uneven during the quarter, as expected. Non-optical Communications revs saw a 2% bump yr/yr, supported by increasing automotive revs. Optical Communications revs climbed by 19% yr/yr, with datacom revenue, a subsegment of optical communications, exploded, surging by 63% yr/yr. The underlying factor here was AI, as evidenced by a 54% increase in revenue for 800 gig and faster products (which are required for AI, with NVDA being a major customer), compared to a 4% increase in revenue for products below 800 gig.
• Conversely, telecom revs, also contained within Optical Communications, contracted by around 1%, which was a smaller decline than FN anticipated due to steady growth from data center interconnect products. Telecom revenue sank by over 20% for the year, reflecting the industry's ongoing inventory digestion. However, FN is optimistic that recent system wins within telecom will begin to make more meaningful revenue contributions during 2H25.
• As a result, FN's Q1 guidance was promising, projecting adjusted EPS of $2.33-2.40 and revs of $760-780 mln, both representing robust yr/yr growth. FN also announced an additional $139 mln for share buybacks, increasing its total authorization to $200 mln, double the size of its repurchase plan at the beginning of FY24.

There was plenty to like from FN in Q4, especially regarding its datacom business, which is benefiting enormously from the healthy demand for all things AI. Also, FN demonstrated its confidence in market demand dynamics over the longer term, announcing that it would break ground on a 2.0 mln square-foot facility at its Chonburi campus during FY25 after its most recent 1.0 mln square-foot facility, which opened two years ago, continues to quickly fill up. FN is also pursuing other customers outside of NVDA to tap further into the unwavering demand for AI. As such, we think FN is worth a look for buy-and-hold investors.