Contract electronics manufacturer Fabrinet reported a 36% year-over-year revenue increase to a $5.3 billion annualized run rate in fiscal 2026, driven by accelerating demand in data center interconnects and broader AI infrastructure beyond its largest hyperscale customer.
The company’s data center interconnect business reached a $1 billion run rate by the end of fiscal 2026, marking a 140% increase from the prior year. Communications infrastructure revenue grew 40% year-over-year, while total revenue rose 19% in fiscal 2025 and 36% in fiscal 2026. Management indicated that fiscal 2027 revenue could exceed the 36% growth pace, describing the upside opportunity as "immense" despite minimal downside risk.
Capacity expansion remains a priority, with current capacity at $5.8 billion and projected to reach $9.8 billion by early calendar Q1 2027, an 85% increase. Fabrinet is constructing Building 10 in Thailand, a 2 million square foot facility estimated to cost $132 million to $133 million and add up to $3.5 billion in revenue capacity upon full occupancy by October 2026. Additional facilities, including Buildings 11 and 12, could add another $4.2 billion in capacity over three years, bringing total potential capacity to $14 billion.
The company’s valuation metrics reflect its growth trajectory, with a price-to-earnings ratio of 40.85 and a return on invested capital near 40%. Fabrinet maintains $169 million in share buyback authorization and secured a $75 million term loan from a Thai bank maturing in August 2026. Gross profit margins hover around 12% over the last twelve months, though management noted a 15-basis-point gross margin headwind if Building 10 remains idle.
Customer diversification is expanding beyond its original hyperscale customer, NVIDIA, to include merchant transceiver makers and direct hyperscale clients. A second merchant transceiver vendor is expected to begin production in the December quarter, focusing initially on 800-gig short-reach transceivers before transitioning to 1.6T products. Optical coherent switches are emerging as a meaningful revenue contributor, with multiple customers including one already shipping products, and expected to scale over the next 12 to 18 months.
Other growth areas include low Earth orbit satellite demand, driven by recurring replacement cycles, as well as automotive and industrial segments fueled by EV charging infrastructure and lidar technology. Fabrinet’s non-pluggable optics partnership with Raytech will be established on its Thailand campus in the coming months, reflecting a shift in the traditional materials-to-value-add ratio for packaging services.
Capital expenditures are projected to remain around $250 million in fiscal 2027, consistent with the prior year, while free cash flow was approximately $4 million in the prior fiscal year. Q1 fiscal 2027 will face a 20 to 30-basis-point expense headwind from annual merit salary increases.
