With changes happening in how people see AI investments, mainly because of worries about a slowdown in projects, a promising investment idea is taking shape. This idea revolves around certain important stocks that seem to be in a good position for potential growth.
According to JP Morgan analyst Samik Chatterjee, the market has witnessed a shift with YTD AI beneficiaries like Dell Technologies Inc (NYSE:DELL), Arista Networks Inc (NYSE:ANET) and Fabrinet (NYSE:FN) experiencing a dip, while Coherent Corp (NYSE:COHR), Lumentum Holdings Inc (NASDAQ:LITE), and Cisco Systems Inc (NASDAQ:CSCO) stand out as outperformers.
The underperformance of YTD AI beneficiaries is deemed misplaced, said Chatterjee, especially in light of Fabrinet’s guidance for the Datacom business.
The perceived slowdown is attributed to market share dynamics in the optics industry rather than a decline in AI infrastructure deployments. Coherent’s robust AI datacom ramp serves as evidence against a significant slowdown, with market dynamics favoring multiple suppliers.
The focus on Fabrinet’s role in the NVLink/InfiniBand connectivity highlights its unique position, differing from Dell and Arista, the analyst noted.
While Fabrinet is aligned with NVLink/InfiniBand, Arista’s future potential wins hinge on displacing InfiniBand. Dell, as a server provider, remains agnostic to networking technology, broadening its market reach.
Lumentum, linked to Coherent’s AI datacom opportunity, not only reinforces AI prospects but also underscores optimism in the Telecom sector. Both Fabrinet and Coherent anticipate an uptick in demand, with China leading followed by recovery in North American markets.
Cisco’s partnership with NVIDIA Corp (NASDAQ:NVDA) positions it as a comprehensive solution provider, encompassing servers, networking, and software frameworks, said the analyst. While this collaboration has medium-term ramifications for AI infrastructure, particularly as enterprises drive investments toward inferencing use cases, Cisco’s near-term benefit is seen in the UCS (Server) segment.
The perceived AI slowdown presents an opportunity for strategic positioning, said Chatterjee. Coherent, Lumentum and Cisco emerge as…