Investors gave up on this AI play, but charts suggest it's worth a look, Jay Woods says

Dycom shares have fallen nearly 50% from their May 27 peak, erasing a more than 75% early-2026 rally as margin pressure, delayed wireless projects and softer near-term expectations tempered AI-infrastructure enthusiasm. The underlying business remains supported by growing backlog and robust data-center demand, and management raised its full-year revenue outlook. The technical setup identifies $275-$285 as key support, with stops below $275; a rebound could target $325 and potentially $350 ahead of November earnings.

Analysis

DY is transitioning from a momentum/AI-adjacency multiple to an execution story. The relevant question is not whether hyperscale data-center spending remains healthy, but whether DY can convert that demand into higher-margin revenue while absorbing labor, subcontractor and project-timing volatility. A raised revenue outlook alongside margin pressure implies revenue quality—not backlog alone—will determine the next earnings reaction; investors should require evidence that incremental data-center work carries better economics than delayed wireless activity.

Near term, the washed-out positioning can support a reflexive rebound if the company avoids another estimate reset. However, the equity remains vulnerable to a de-rating if investors conclude that its AI exposure is indirect and capacity-constrained rather than a durable source of margin expansion. The more attractive second-order beneficiaries of sustained fiber and power buildout may be suppliers with direct content exposure—Corning (GLW) in optical fiber and Eaton (ETN) / Vertiv (VRT) in electrical infrastructure—though these names already embed materially higher AI expectations.

The contrarian point is that a large drawdown does not itself establish value: the prior valuation likely capitalized a step-change in AI-related mix that has not yet been demonstrated in reported margins. November earnings is the decisive 1-3 month catalyst. A recovery in gross margin, stable backlog conversion and a maintained or improved full-year operating-margin outlook would support a rerating; a guidance cut or further delay in high-margin work would invalidate the bounce thesis and raise risk of a more prolonged multiple reset.

For the 6-18 month view, DY is a potential beneficiary of the less-visible last-mile constraint in data-center expansion: fiber routing, utility interconnection and field execution. That opportunity is real but fragmented, labor-intensive and exposed to customer project sequencing, making DY less operating-levered than semiconductor or power-equipment peers. Treat the position as a measured cyclical infrastructure allocation rather than a pure AI beta expression.

Key Decisions for Investors

• Initiate a tactical DY long only on confirmation that $275-$285 support holds; target $325 initially and $350 on a broader risk-on reversal, with a hard stop below $275. This offers roughly 2:1 to 3:1 reward/risk from the support zone, but size modestly ahead of November earnings.
• For a 1-3 month defined-risk expression, consider DY November $300/$350 call spreads only if implied volatility is not elevated versus its post-earnings range; avoid naked calls because another margin revision can overwhelm a technical rebound.
• Do not add to a strategic DY position until management demonstrates margin stabilization: monitor quarterly gross/operating-margin guidance, backlog conversion and the mix of data-center versus wireless work. A reduced full-year margin outlook or material backlog-growth deceleration is thesis-falsifying.
• Use a relative-value basket rather than concentrated AI-infrastructure exposure: long DY versus a partial short in VRT or ETN only if DY's valuation discount remains wide after a confirmed margin recovery. The trade isolates delayed field-infrastructure monetization from crowded power-equipment AI expectations; close if DY breaks $275 or VRT/ETN receive upward earnings revisions.