Fabrinet's Nvidia Catalyst: Bullish Bet Or Short Seller's Trap?

Fabrinet FN is at the crossroads of a powerful growth catalyst and a brewing short squeeze.

The optical component manufacturer is riding the 1.6T transceiver ramp with Nvidia Corp NVDA. Nvidia has been a key driver of demand for Fabrinet’s optical components, one that could fuel an “outsized beat and raise” in the coming quarters, according to JPMorgan analyst Samik Chatterjee.

Yet, despite this bullish setup, short interest in Fabrinet has surged 10.2% in December. Fabrinet has 7.28% of shares now sold short.

Table Source: Benzing Pro

That's a dangerous game to play when an upside surprise is in the cards.

Read Also: Fabrinet: The AI Secret Weapon Powering Nvidia’s Data Center Boom

Nvidia’s Demand Vs. Short-Seller Risks

Chatterjee remains cautious about the growing appetite to short Fabrinet shares into earnings. He warns that the 1.6T transceiver ramp could trigger an upside shock.

While component shortages and slower GPU introductions have raised industry-wide concerns, updated Datacom forecasts paint a much brighter picture. The 400G+ market forecast for 2025 has been revised to $12 billion, with 800G leading the charge. That’s a significant jump from previous estimates of $7 billion.

Notably, the 1.6T ramp with Nvidia appears on track, even as uncertainty lingers for non-Nvidia volumes.

Solid Growth Expectations

Fabrinet is expected to post sequential growth in revenue and earnings. Chatterjee is forecasting $821 million in revenue for F2Q25, ahead of consensus estimates of $812 million.

The analyst sees gross margins at 12.7% and EPS at $2.51, both slightly above Street expectations.

Looking ahead, F3Q25 revenue is projected at $841 million, again topping consensus, reinforcing the company's steady upward trajectory.

Squeezing The Shorts?

With Fabrinet trading at a premium valuation and institutional demand from Nvidia in full swing, short sellers could be playing with fire.

The stock has slumped nearly 12% in the past six months, but with demand outstripping supply in key optical components, pricing dynamics could favor suppliers in an atypical fashion.

If Fabrinet delivers a major upside surprise, a short squeeze could be in the making.

Chatterjee sees risks in betting against Fabrinet with Nvidia's tailwind in play. With short interest climbing and upside potential looming, Fabrinet could be a stock that shorts regret and bulls celebrate.

Read Next:

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