New Alpha | Say yes to the mess: COHR/LITE/FN
💰 U.S. stock markets are experiencing narrow fluctuations, with Nvidia gaining over 7% for the week, recovering from previous losses. DeepSeek has sparked a surge in Chinese assets.
💹 $COHERENT(COHR)$, $Lumentum(LITE)$, and $Fabrinet(FN)$: Under Trump’s Stargate Project, demand for AIDC’s optical transceivers has surged sharply.
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| Market Recap
The three major U.S. stock indices experienced narrow fluctuations, with the S&P 500 $S&P 500(.SPX)$ up by 0.36% and the Nasdaq $NASDAQ(.IXIC)$ up by 0.51%. Notably, $Apple(AAPL)$ rose over 0.3%, while $Tesla Motors(TSLA)$ fell by 1%. Chinese assets showed significant strength, with $NASDAQ Golden Dragon China Index(HXC)$ up over 2%, $Kingsoft Cloud Holdings Ltd(KC)$ increasing by more than 11%, and $Li Auto(LI)$ gaining over 6%.
Megacaps
Back in black: $NVIDIA(NVDA)$ closed up more than 3%, marking a more than 7% increase for the week, reclaiming previous losses. The Nvidia GTC annual conference is scheduled for March 17-21, with CEO Jensen Huang scheduled to deliver a keynote speech on March 18. Market watchers are keen to see if Huang will address topics such as DeepSeek, the U.S.-China trade war, and updates on Nvidia's new GB300 servers.
MAGA
$Palantir Technologies Inc.(PLTR)$ surged nearly to historic highs, driven by strong performance from this AI defense software company. This can largely be attributed to support from key backers, including co-founder and largest individual shareholder Peter Thiel, following endorsements from Trump. The Trump administration has increased investments in AI via the Stargate project, which will benefit Palantir in the government sector.
OpenAI has entered an advanced phase of site selection for multiple locations in Texas, initiating construction of its first data center in Abilene.
Asia Markets
The phenomenon of DeepSeek has gained global attention, marking a significant moment for Chinese companies in the global AI narrative. Deutsche Bank published a report indicating that China’s manufacturing and service sectors hold a leading position globally, with the rise of DeepSeek symbolizing China's "Sputnik moment"—a transformative opportunity for change and progress. Ray Dalio noted that DeepSeek indicates China's lead in applications, predicting more robotic applications in the future.
Driven by the positive impact of DeepSeek, Chinese assets have surged, with Hong Kong stocks related to autonomous driving experiencing a significant rise; $Byd Company Limited(002594)$ increased by 5%, $XIAOMI-W(01810)$ increased by 4%, and $BLACK SESAME(02533)$ saw a peak increase of over 50%.
Benefiting from strong performance in the Singapore market, $SGX(S68.SI)$ reported its highest half-year profit since its listing on Thursday, with shares rising over 2% on the same day and increasing by 9% the following day, reaching a historical high.
| High on demand
Optical transceivers are critical components in optical communication systems, responsible for converting electrical signals to optical signals or vice versa, supporting high-speed data transmission in various fields, including the internet and data centers.
Simply put, optical transceivers act like "translators," converting electrical signals into light signals and vice versa, facilitating information transmission. The advancement of AI technology has driven the demand for greater computational power, promoting the growth of optical transceivers.
Increased demands for computational power mean data centers require faster optical transceivers for data transmission. Additionally, the demand for efficient, low-latency optical transceivers has sharply risen in AI Data Centers (AIDC).
Furthermore, new AI models like DeepSeek require substantial computational resources and high-speed communication support, which further heightens the demand in the optical transceiver market, contributing to growth in the performance of optical transceiver companies.
| Optical transceivers: Key players
In the optical transceiver market, Coherent and Lumentum focus on technological innovation and the development of optical transceiver products, while Fabrinet specializes in manufacturing and contract services.
Coherent (COHR)
$COHERENT(COHR)$ (formerly Finisar) primarily offers high-performance optical solutions, including optical transceivers, lasers, and amplifiers, widely used in data centers, communications, autonomous driving, medical, and industrial sectors. Coherent emphasizes innovation and high-precision optical components, especially in high-speed data transmission and precision optics.
In Q4 of fiscal year 2024, Coherent reported revenue of $1.314 billion, a year-on-year increase of 9.1%. Revenue from the data communication sector grew by 10% quarter-on-quarter, largely benefiting from strong growth in 800G optical transceivers in the AI sector.
Coherent has enjoyed favorable outcomes from large data center operators such as Google and Microsoft, and its products are widely used in 5G base station construction and other high-growth areas.
Lumentum (LITE)
$Lumentum(LITE)$ provides a variety of optical transceivers, lasers, and optical solutions, focusing on data communication, laser scanning, and optical measurement technologies. Lumentum holds a significant market share in optical communication equipment, particularly excelling in high-speed transmission and 3D sensor technologies.
In Q1 of fiscal year 2025, Lumentum achieved revenue of $336.9 million, a year-on-year increase of 6.1%, exceeding the company's previous guidance. Revenue from cloud and networking businesses grew by 11% quarter-on-quarter and 23% year-on-year, primarily due to investments in AI data centers.
Lumentum's technology is widely utilized by major companies, including $Amazon.com(AMZN)$ AWS, $Microsoft(MSFT)$ Azure, and $Meta Platforms, Inc.(META)$, particularly supporting optical transceivers and optical communication technologies in data centers.
Fabrinet (FN)
$Fabrinet(FN)$ is primarily a provider of optical transceiver manufacturing and assembly services, focusing on delivering high-precision manufacturing services for optical communication and high-tech companies.
Fabrinet's business encompasses not only optical transceivers but also lasers, optical sensors, and more. In Q4 of fiscal year 2024, Fabrinet reported revenue of $753 million, a year-on-year increase of 14.9%. Of this, $596 million came from the optical communication business, accounting for nearly 80% of total revenue, with a year-on-year growth of 18.7%.
Fabrinet collaborates with several leading optical communication and electronics companies, primarily receiving orders from Lumentum, $Ciena(CIEN)$, $Infinera(INFN)$, and has become their contract manufacturer.
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