Fabrinet, a manufacturer of networking and optical equipment, faces analyst downgrade due to Nvidia's GPU unbundling strategy.

Merely days after Donald Trump won a tightly-contested election for the top office in the US, Elon Musk, one of his most prominent backers, received further good news as xAI, the AI startup he founded in 2023, raised $5 billion in a funding round. The latest round of funding brought the valuation of the startup to over $50 billion. The Wall Street Journal reported that Valor Equity Partners, Sequoia Capital, and Andreessen Horowitz were part of the raise, while the sovereign wealth fund of Qatar also participated in the funding process. This set of investors had also backed the startup with $6 billion in funding earlier this year.

xAI has developed Grok, one of the leading AI chatbots in the world, which rivals the performance of chatbots from tech powerhouses with far greater resources. The firm also controls Colossus, one of the most powerful supercomputers globally. The supercomputer will become fully operational by the end of this year, and Musk plans on expanding the hardware at the center of this endeavor to 200,000 GPUs. Last year, the startup also released PromptIDE, an integrated development environment designed for prompt engineering and interpretability research.

Fabrinet (NYSE:FN) offers optical packaging, along with precision optical, electro-mechanical, and electronic manufacturing services. The company produces fiber-optic cables that power telecommunications, AI data centers, and the global Internet infrastructure. On November 20, B Riley downgraded the stock to Sell from Neutral with a price target of $178, down from $194. The advisory believes the trend of unbundling Nvidia's GPU platforms will adversely impact Fabrinet's optics business, with the change impacting Nvidia's optics business rather than its GPU business.

Fabrinet ranks 12th on the list of AI news updates Wall Street is monitoring. While acknowledging the potential of FN as an investment, the analysis suggests that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. For investors seeking an AI stock more promising than FN that trades at less than 5 times its earnings, alternative opportunities warrant consideration.