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Fabrinet (FN) is tumbling lower despite reporting record Q2 results that beat expectations on both the top and bottom lines. While the company delivered a "beat-and-raise" performance, the stock, which is up nearly 130% over the last year, is experiencing significant profit-taking. Despite record revenue of $1.13 bln (+36% yr/yr) and Q3 guidance that exceeded consensus, investors appear to be reacting to persistent supply constraints in datacom and a guidance range that, while strong, failed to reach the blowout levels priced into the valuation with a P/E north of 50x.

• Optical communications revenue reached $833 mln (+29% yr/yr), fueled by record Telecom sales of $554 mln (+59% yr/yr) and strong demand for 400ZR and 800ZR DCI modules (+42% yr/yr).
• Non-optical revenue surged 61% to $300 mln, primarily driven by High-Performance Computing (HPC) products, which contributed $86 mln in its first fully broken-out quarter.
• Datacom revenue grew 2% sequentially to $278 mln, though it remains down 7% yr/yr as the company navigates supply constraints for leading-edge 200 gig per lane lasers.
• Automotive revenue ($117 mln) grew 12% yr/yr but dipped sequentially as anticipated, while industrial laser revenue showed steady growth of 10% to $41 mln.
• The 2-million-square-foot Building 10 facility remains on track for late 2026 completion, with a 250,000-square-foot pull-in expected by mid-year to accommodate robust customer demand.

Briefing.com Analyst Insight

FN's Q2 results confirm its position as a primary beneficiary of the AI and data center buildout, yet the stock sell-off suggests that "great" wasn't enough to satisfy a stock that's up 130% yr/yr. The sharp ramp in HPC and record Telecom revenue demonstrate strong execution, but management's warning that HPC growth can be lumpy and the ongoing supply constraints in leading-edge datacom products likely created unease among momentum investors. While the pull-in of Building 10 capacity and the second-source approval for EML lasers are long-term positives, the market is currently recalibrating expectations as the company faces high yr/yr comparisons. Ultimately, FN remains a dominant player in high-precision packaging, but investors are demanding blowout results to justify the current premium.