Why Fabrinet Stock Soared Today

Shares of Fabrinet (NYSE: FN) were up on Thursday. The company's stock gained 10.8% as of the market close and was up as much as 13.4% earlier in the day. The leg up came amid broader market weakness, with the S&P 500 (SNPINDEX: ^GSPC) down 1.4% and the Nasdaq Composite (NASDAQINDEX: ^IXIC) down 2.1%.

The company, which manufactures precision optical equipment critical to modern data centers, announced a strategic partnership with Amazon in which the tech giant will purchase Fabrinet stock.

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A new warrant agreement

The company has entered an agreement that allows Amazon to purchase 381,922 ordinary shares of Fabrinet at a price of $208.48 per share. The warrant will expire on March 12, 2032. Nearly 40,000 shares have already vested, while the remainder will vest based on future payments by Amazon or its affiliates to Fabrinet.

A key data center supplier

Amazon, through its wholly owned subsidiary Amazon Web Services, is one of the largest data center operators in the world. Its servers power a large portion of the modern internet and help enable AI models, like ChatGPT.

Partnering with Amazon could propel sales growth for Fabrinet as Amazon scales its own artificial intelligence (AI) operations. Structuring the deal as it has with most of the shares vesting on future payments indicates this will be a long and fruitful relationship.

Fabrinet is in a solid financial position with minimal debt and can hopefully take greater advantage of continued AI capital expenditures from big tech companies like Amazon. With a price to earnings ratio (P/E) of 22.6, it's reasonably priced.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.