Fabrinet (NYSE: FN) stock saw big sell-offs in Wednesday's trading. The engineering and manufacturing specialist's share price closed out the daily session down 9% and had been down as much as 13.6% earlier in the day's trading.

Fabrinet stock lost ground today after B. Riley downgraded its rating on the stock from neutral to sell. The firm also lowered its one-year price target on the stock to $178 per share, down from its previous target price of $194 per share. Based on today's closing price, B. Riley's new price target on the stock suggests potential downside of 21%.

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Is Fabrinet's optics business about to suffer from the loss of bundling with Nvidia?

B. Riley's analysts anticipate that Fabrinet's business will soon see headwinds stemming from weakening traction for product bundles sold in conjunction with Nvidia's graphics processing units (GPUs). The artificial intelligence (AI) leader's GPUs have been in very high demand, and tech components from third parties including Fabrinet have also been bundled with the advanced processors.

But Amazon is now moving to purchase only Nvidia's GPUs and source additional components in-house or through other partners. B. Riley's analysts expect that other cloud hyperscalers, including Microsoft and Meta Platforms, will adopt a similar strategy.

What's next for Fabrinet?

Fabrinet has been seeing strong business performance in conjunction with AI-related demand. With its last financial update, the company guided for revenue between $800 million and $820 million in the current quarter, suggesting growth of roughly 14% year over year at the midpoint of the target range. Meanwhile, the company's midpoint target for adjusted earnings per share calls for growth of roughly roughly 19% annually.

The company should still be able to hit its Q2 guidance ranges, but unbundling headwinds could potentially impact performance further out. The company's recent momentum has been aided by demand connected to Nvidia's GPUs, and erosion on that front could cause investors to assign lower valuation multiples to Fabrinet.

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