Amidst shifting perceptions about AI investments in a market dogged by apprehensions regarding project slowdowns, a compelling investment thesis is emerging, centered around select stocks well-positioned for potential growth.
JP Morgan analyst Samik Chatterjee notes a notable market realignment, with Year-to-Date (YTD) AI beneficiaries such as Dell Technologies Inc, Arista Networks Inc, and Fabrinet experiencing a dip, while Coherent Corp, Lumentum Holdings Inc, and Cisco Systems Inc emerge as standout performers.
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Chatterjee contends that the underperformance of YTD AI beneficiaries is unwarranted, especially in light of Fabrinet’s Datacom business guidance.
Any perceived slowdown is attributed to optics industry market dynamics rather than a reduction in AI infrastructure deployments. Coherent’s strong AI datacom ramp is evidence against a significant slowdown, with market dynamics favoring multiple suppliers.
The spotlight on Fabrinet’s role in the NVLink/InfiniBand connectivity underscores its unique position compared to Dell and Arista, notes the analyst.
Fabrinet is aligned with NVLink/InfiniBand, and Arista’s future potential wins rely on displacing InfiniBand. Dell, as a server provider, remains neutral to networking technology, broadening its market reach.
Lumentum, associated with Coherent’s AI datacom opportunity, not only reinforces AI prospects but also underscores optimism in the Telecom sector. Both Fabrinet and Coherent anticipate increased demand, with China leading the way followed by a recovery in the North American markets.
Cisco’s partnership with NVIDIA Corp positions it as a comprehensive solution provider, covering servers, networking, and software frameworks, according to the analyst. While this collaboration has medium-term implications for AI infrastructure, particularly as enterprises direct investments towards inferencing use cases, Cisco’s near-term advantage is seen in the UCS (Server) segment.
Chatterjee points to the perceived AI slowdown as an opportunity for strategic repositioning. Coherent, Lumentum, and Cisco emerge as potential winners in this evolving landscape, backed by their unique market positioning, strong growth prospects, and partnerships aligned with the evolving dynamics of AI deployment.
Investors seeking to capitalize on the AI rotation should factor in these aspects when crafting an informed investment strategy.
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