Note: please see my post of “Lumentum, an expert in optical communications and lasers” also
Company Introduction
Overview
Coherent (ticker: COHR) was founded in May 1966 by physicist James Hobart and five co-founders.
In July 2022, II-VI Incorporated completed its acquisition of Coherent, and the combined company was named Coherent Corp.
Core Business
Coherent develops, manufactures, and markets engineered materials, optoelectronic components and devices, and laser systems for the industrial, communications, electronics, and instrumentation markets.
Initial Public Offering
Coherent went public in 1970.
Business and Products
Diverse Products
Coherent provides laser-related equipment, parts, and services for a wide range of industries and sectors. The company operates numerous subsidiaries focused on specific applications such as engraving, drilling, or welding. The company manufactures lenses, mirrors, diodes, laser measurement equipment, industrial lasers, and lasers for research laboratories.
The company develops, manufactures, and markets engineered materials, optoelectronic components and devices, and laser systems for the global industrial, communications, electronics, and instrumentation markets.
Wide Range of Applications
Coherent designs, manufactures, and supplies optoelectronic systems and medical instruments that utilize laser, precision optics, and microelectronics technologies. The company integrates these technologies into a wide range of products and systems designed to meet customers’ productivity and performance needs.
Coherent’s primary markets include the scientific research community, medical institutions, clinics, and private practices; laser technology also supports a variety of commercial applications, covering semiconductors, optical disc mastering, light shows, and entertainment.
Operating Performance
Q1 2026 Financial Results
On May 6, Coherent announced its financial results for the first quarter of 2026. Driven by accelerated demand from AI data centers and communications customers, the company’s revenue increased by 20.5% year-over-year to $1.8 billion, exceeding analysts’ expectations by 1.7%. Meanwhile, its adjusted earnings per share were $1.41, in line with Wall Street expectations. Despite strong revenue performance, investor sentiment appears to be weighed down by concerns about the company’s ability to effectively expand capacity and maintain profit margin growth.
Outlook
Coherent reported first-quarter 2026 results that exceeded analyst expectations, with both revenue and profit margins surpassing expectations. Management cited strong demand from AI data centers and communications, along with higher capital expenditures, as driving the growth, making it a focus of attention once again.
Analysts expect Coherent’s earnings per share to increase 75.4% year-over-year to $4.70 for the fiscal year ending in June. The company’s past earnings performance has been mixed. In the past four quarters, it has exceeded market expectations in three quarters and missed expectations in one.
Benefiting from AI Development
Coherent products are widely used in data centers
Coherent is a company focused on optical and laser technologies applied to high-speed communications, artificial intelligence computing, and advanced manufacturing. This has forged closer ties between Coherent and AI-related manufacturers as data centers scale to handle larger AI workloads. For investors, this means Coherent’s product portfolio is directly aligned with the continued market demand for high-bandwidth connectivity.
Related Optical Communication Products
The ongoing expansion of AI data center infrastructure and high-performance computing is driving structural growth in demand for advanced optical transceivers (800G, 1.6T and above), optical path switches, and related photonic components, thus fueling strong order growth and sustained revenue momentum in Coherent’s data communications business.
Strategic Investment from Nvidia
Coherent announced a multi-year partnership with NVIDIA, including a planned $2 billion investment. The agreement focuses on expanding optical component supply, R&D, and U.S. manufacturing capabilities. This collaboration is closely related to the growing demand for data center and communication products driven by AI.
This multi-year framework agreement outlines Coherent’s development plans for its AI-related optics business, covering all aspects from R&D to U.S. domestic manufacturing. As details such as timelines, project milestones, and capacity planning are gradually released, investors will be able to assess how this partnership aligns with Coherent’s long-term strategic positioning in the AI data center infrastructure sector.
Risks
Over-Concentration in AI Data Centers
While Coherent’s optical transceivers and data communication components are crucial for AI data centers, pessimists emphasize significant risks overlooked by investors, including its core traditional business, aggressive capital expansion cycle, and inflated valuation.
In the third quarter of fiscal year 2026, revenue from data centers and communications surged, accounting for 75% of the company’s total revenue. While this business grew 37% year-over-year, it masked stagnation or cyclical downturns in traditional industrial, materials, and consumer laser markets, which have historically been more sensitive to macroeconomic slowdowns. Coherent is ramping up production of next-generation optical transceiver nodes. Pessimists believe that order growth momentum will stall once the initial cluster topology of hyperscale data centers is completed.
China is choking Coherent’s throat
Coherent warned of an indium phosphide (InP) shortage during its Q1 2026 earnings call. Just a week later, CEO Jim Anderson, along with a U.S. business delegation, visited China with President Trump, hoping to persuade China to ease export controls on InP, a material crucial for manufacturing high-speed optical chips for AI data centers.
“InP is one of several supply chain bottlenecks hindering the construction of AI data centers,” said Konrad Wang, a research analyst at SemiAnalysis.
With AI workloads growing exponentially, the demand for InP is high because it is an irreplaceable core material in new technologies that data center developers are turning to—that is, using light or photonics in optical fibers, rather than transmitting electrical signals through copper wires.
Both Coherent and Lumentum, two major component manufacturers in optical communications, are currently facing InP shortages.
Capital Market Performance
Stock Price Performance
This technology company has significantly outperformed the market over the past 52 weeks. Its stock price has surged 361.6% during this period, while the S&P 500 has only risen 25.2% over the same time. Furthermore, since the beginning of 2026, the stock has risen 96.6%, while the S&P 500 has only risen 8.1%.
Nvidia’s investment boosted the stock
The stock has performed strongly recently, with a 18.24% increase in the past 30 days and a 51.99% increase over the past 90 days. The one-year total shareholder return is very impressive, reflecting the growing demand for AI data centers and how Nvidia’s investment has changed market expectations regarding growth and risk.
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