Coherent Corp (COHR)
TL;DR
Coherent is the vertically-integrated AI optical components leader — InP laser chips through transceivers (800G/1.6T), OCS, CPO, and scale-across — supplying AI data-center networking from substrate to module. Just reported: Q3 FY26 revenue $1.8B record (+27% YoY pro forma, +9% QoQ), non-GAAP GM 39.6% (+105bps YoY), OM 20.3%, EPS $1.41 (+55% YoY); record bookings extending to CY2028 — strong. Q4 FY26 guide $1.91B-$2.05B (mid $1.98B, accelerating sequential), GM 39-41%, EPS $1.52-$1.72; FY2027 growth above FY2026 — strong. Stock at $345 with 66x P/E(ttm), +45% post last quarter end rip from $238 close — premium prices in 6-inch InP capacity ramp + CPO H2 CY2026 + NVIDIA $2B equity validation.
Summary
| Finding | Assessment |
|---|---|
| 5-Year Stock Return | Stock currently $345, up >480% from $59 (5 years ago); 11x from $32 trough. TTM OP grew $404M → $1,047M (now). P/E went from negative to 66x. Stock gain heavily concentrated in last 5 quarters as AI transceiver supercycle + NVIDIA partnership materialized. |
| Business Model | Only vertically integrated InP photonics company at scale: substrates → laser chips → transceivers. Two segments: Data Center & Communications (75%) and Industrial (25%). 6-inch InP wafer pioneer (4x devices, half cost vs 3-inch). Revenue $7B+ run rate. |
| Competitive Moat | NARROW Vertical integration + InP supply scarcity create multi-year advantages. NVIDIA $2B equity + multi-year LTA validates CPO position. OCS + Multi-Rail add new vectors. But hyperscaler backward integration risk, Lumentum competition, and tech substitution limit moat durability. |
| Past 5-YR Drivers | AI datacenter transceiver explosion ($800M → $3.4B+ networking), II-VI/Coherent merger margin leverage (GM 31% → 39.6%, target >42%), portfolio restructuring (33 sites exited), debt reduction (5.5x → 0.5x). |
| Recent Stock Move | Stock currently $345, +45% post Q3 print vs $238 close; 11x from $32 trough (Mar 2024). TTM OP grew 7x ($150M → $1,047M). P/E went from negative to 66x. Record bookings extending to CY2028. |
| Revenue Trend | ACCELERATING Rev YoY: 21% (Q3 2026) → 32% (Q4 2026E). |
| Margin Trend | EXPANDING OM%: 12% (Q3 2026) → 17% (Q4 2026E). |
| TTM OP Trajectory | ACCELERATING TTM OP QoQ: 0% (Q3 2026) → 4% (Q4 2026E). TTM OP $1,047M. |
| Key Opportunities | NVIDIA $2B equity + multi-year LTA validates CPO ($15B+ TAM by 2030); 6-inch InP doubling 1Q early, 4x by end CY2027. OCS opp raised to $4B+; Multi-Rail $2B+ H1 CY27; thermal solutions H2 CY27. 1.6T accelerating; 800G grows again CY26. |
| Key Risks | P/E 66x prices in flawless capacity ramp + CPO landing on schedule. CapEx intensity consuming all FCF (-51% Q3, -70% Q4E). Industrial flat. Hyperscaler backward integration risk in 10-K. Lumentum + Broadcom InP competition; SiPho/VCSEL substitution at higher speeds. |
| Catalysts | Q4 FY26 print (~Aug 2026, guide $1.91-2.05B mid $1.98B); 6-inch InP doubling next quarter; CPO scale-out revenue H2 CY26; Multi-Rail revenue H1 CY27; thermal solutions H2 CY27; FY27 growth above FY26; CapEx peak likely late CY26 → FCF recovery CY27. |
| P/E(ttm) Valuation | ELEVATED at 66x (range: negative–117x over last 7 positive quarters). P/E turned positive Q3 FY25. At 66x, prices in sustained 20%+ revenue growth + GM expansion to >42% + CPO ramping. EPS growth significantly faster than revenue is the bull case for P/E compression. |
Q3 FY2026 Key Data
- Revenue $1.8B record (+27% YoY pro forma, +9% QoQ); GM 39.6% (+105bps YoY); OM 20.3%; EPS $1.41 (+55%). Earnings outpaced revenue. DC&Comm 75% of rev: DC +37% YoY, comms +60%.
- Cash $1.5B → $3B on NVIDIA $2B equity; debt leverage 0.5x (vs 1.7x). CapEx $290M (vs $154M Q2; rising). 6-inch InP doubling 1 qtr early; more than 2x again by end CY2027.
- Q4 FY26 guide $1.91-$2.05B (mid $1.98B, another record); GM 39-41%; OpEx $360-380M; EPS $1.52-$1.72. FY2027 growth expected above FY2026. Backlog record; orders to CY2028; LTAs to end of decade.
Key Takeaways from Earnings Call
- NVIDIA $2B equity + multi-year LTA through end of decade — covers high-power CW laser + ELS + FAU + isolators + TECs. Scale-out CPO H2 CY26; scale-up CPO H2 CY27. CPO opp >$15B by 2030; multiple customers beyond NVIDIA. 400G EML demos at OFC 2026.
- 6-inch InP ramp ahead of plan: doubling 1 qtr early; 3 sites (TX, Sweden, Zurich); 4x devices at <half cost vs 3-inch. First 6-inch transceivers shipped Q3 — contributed to GM. Half of capacity 6-inch by end CY26. 2x again by end CY27.
- OCS opp raised to >$4B; production bottleneck resolved; 2 sites ramping; Multi-Rail H1 CY27. Comms +60% YoY (DCI + scale-across + telecom). Multi-Rail addresses inter-DC bandwidth — $2B+ market. Thermal solutions H2 CY27.
Key Segments and Revenue Mix (FY2025)
| Segment | Revenue | % of Total | Key Details |
|---|---|---|---|
| Networking | $3,421M | 59% | Datacom transceivers (800G/1.6T), InP laser chips, telecom components. +49% YoY. AI datacenter demand driving growth. |
| Lasers | $1,435M | 25% | Annealing lasers (display), precision manufacturing, fiber lasers. +3% YoY. Display capex recovery offset by soft industrial. |
| Materials | $954M | 16% | SiC substrates, infrared optics, thermal solutions. -6% YoY. Weak auto/EV demand; pivoted to wafer-only SiC strategy. |
Business Model
SUPPLIERS
InP, GaAs, SiC wafer substrates (internal)
Specialty gases & chemicals
TSMC (select silicon photonics)
Equipment vendors (MOCVD, litho)
Materials /
Components
→
COHERENT
InP/GaAs laser chip fabrication (6" wafers)
Transceiver module assembly & test
Optical circuit switch manufacturing
SiC substrate & epi growth
Vertically integrated: substrate → module
Transceivers /
Lasers / SiC
→
$ Revenue
CUSTOMERS
Hyperscalers (AI data centers)
Cloud providers (Microsoft, Google, Meta)
Telecom equipment makers
Display manufacturers (Samsung)
Auto/EV (Denso, MELCO — SiC JV)
Moat Assessment: NARROW
- Vertical integration in InP photonics = structural cost advantage: COHR grows InP wafers, fabricates lasers, assembles transceivers — only one at scale doing all 3. 6-inch InP widens it. Lumentum + Broadcom compete; backward-integration risk.
- InP supply scarcity = multi-year capacity moat: Mgmt: won't rebalance CY26 or CY27. COHR controls ~30%+ of global InP laser chip supply. New fab takes 2-3 yrs + deep process know-how. Erodes if competitors or SiPho/VCSEL take share at higher speeds.
- OCS + CPO + Multi-Rail = new moat vectors but unproven at scale. Liquid crystal OCS: 30% cost + 41% power savings vs MEMS. CPO secured NVIDIA $2B + multi-year LTA. Multi-Rail H1 CY27. Pre-scale products vs established players + uncertain adoption.
Stock vs. Earnings — 5-Year Performance
- Stock $345, up >480% from $59 (5 yrs ago); 11x from $32 trough (Mar 2024). COHR transformed from diversified compound semi → AI networking powerhouse. Appreciation concentrated in last 5 qtrs as AI supercycle + 6-inch InP + NVIDIA materialized.
- Path was volatile: $72 (Jun 2021) → $33 (Jun 2023) on II-VI/Coherent merger losses + telecom collapse + $5.2B acquisition debt. TTM OP $404M → $98M. Recovered slowly to $89 Q4 FY25, exploded to $345 on AI demand + 6-inch + NVIDIA.
- P/E was negative 8 consecutive qtrs (Q2'23-Q2'25); turned positive Q3 FY25 at 117x; now 66x. GAAP losses from merger amortization + restructuring kept P/E negative. Market now prices in 20%+ growth + GM >42% + CPO ramp.
Past 5-Year Key Drivers
- AI datacenter transceiver explosion: Networking grew $800M (FY21) → $3.4B+ (FY25) on hyperscaler demand for 400G→800G→1.6T optical. Vertical integration gives capacity control + margin. DC book-to-bill >4x Q2 FY26.
- Vertical integration from II-VI/Coherent/Finisar merger creating margin leverage: InP wafer → transceiver assembly. 6-inch InP (world's first) delivers 4x devices at <half cost; GM 31% → 39.6% in 2 years; >42% target.
- Portfolio restructuring unlocking value: Sold A&D ($400M), Munich tools, shut 5 unprofitable lines — 33 sites exited. CapEx redirected to InP/transceiver/OCS/CPO. Non-core proceeds + NVIDIA $2B reduced leverage 5.5x → 0.5x.
Quarterly Key Metrics
| Q3 2024 | Q4 2024 | Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 | Q1 2026 | Q2 2026 | Q3 2026 | Q4 2026E | |
|---|---|---|---|---|---|---|---|---|---|---|
| Quarter End | Mar 2024 | Jun 2024 | Sep 2024 | Dec 2024 | Mar 2025 | Jun 2025 | Sep 2025 | Dec 2025 | Mar 2026 | Jun 2026 |
| Stock Price | $60 | $73 | $89 | $95 | $65 | $89 | $108 | $185 | $238 | $345 |
| Stock QoQ | +42% | +21% | +22% | +7% | -31% | +37% | +21% | +71% | +29% | +45% |
| Rev YoY | -2% | 9% | 28% | 27% | 24% | 16% | 17% | 17% | 21% | 32% |
| OM% | 4% | 7% | 9% | 11% | 15% | 20% | 20% | 13% | 12% | 17% |
| R40 (Rev YoY + OM%) | 1% | 16% | 37% | 38% | 39% | 36% | 37% | 30% | 33% | 49% |
| TTM OP ($M) | $219 | $150 | $289 | $414 | $588 | $798 | $989 | $1,050 | $1,047 | $1,088 |
| TTM OP QoQ | -9% | -32% | +93% | +43% | +42% | +36% | +24% | +6% | +0% | +4% |
| FCF/OP ttm | 103% | 133% | 43% | 55% | 43% | 24% | 7% | -10% | -51% | -70% |
| Debt/EBITDA | 4.5x | 5.1x | 4.4x | 3.7x | 3.0x | 2.6x | 2.1x | 2.0x | 2.0x | 2.0x |
| P/E ttm | -32x | -44x | -98x | -15007x | 62x | 58x | 37x | 56x | 64x | 66x |
Recent Stock Performance & Drivers
- Stock currently $345, vs $238 (Q3 FY26 close) and $32 (Mar 2024 trough — 11x rally in 8 qtrs). The +45% post last quarter end rip on top of +29% prior qtr reflects: $1.8B record rev, NVIDIA $2B equity, 6-inch InP ahead of plan, FY27 growth guided above FY26.
- TTM OP grew $150M → $1,047M in 8 qtrs (+7x) on AI transceiver volume + GM expansion (+420bps YoY) + non-core divestitures. OM% 4% → 20%. Debt/EBITDA 5.1x → 0.5x post-NVIDIA. GAAP profitable FY2025 after multiple loss years.
- FCF/OP -51% Q3, -70% Q4E — heavy CapEx ($290M Q3, rising) consumes operating cash. Capacity expansion is the constraint; FCF recovers when CapEx peaks (likely late CY2026). Debt leverage at 0.5x gives runway to keep investing through the cycle.
Opportunities
- NVIDIA $2B equity + multi-year LTA through end of decade validates the CPO position. Covers high-power CW + ELS + FAU + isolators + TECs. CPO opp >$15B by 2030. Scale-out H2 CY26; scale-up H2 CY27. Multiple customers beyond NVIDIA.
- 6-inch InP ramp ahead of plan: doubling 1 qtr early; 4x by end CY27. 4x devices at <half cost vs 3-inch. 3 sites (TX, Sweden, Zurich new). First 6-inch transceivers shipped Q3 — contributed to GM. Half of capacity 6-inch by end CY26.
- OCS opp raised to >$4B; Multi-Rail $2B+; thermal solutions H2 CY27. OCS bottleneck resolved; 2 sites ramping. Multi-Rail H1 CY27 — addresses inter-DC bandwidth. Thermadite + thermoelectric generators expand industrial tech into AI DCs.
Challenges
- Valuation risk: P/E 66x at $345 (re-expanded from 64x at $238 close) prices in flawless capacity ramp + CPO on schedule. Pre-print P/E 64x. Any 6-inch yield slip, OCS bottleneck, or CPO delay would compress the multiple. Rallied 11x from $32 trough.
- CapEx intensity consuming all free cash: FCF/OP -51% Q3, -70% Q4E. CapEx $290M Q3 (vs $154M Q2), rising in Q4. InP + assembly/test + OCS/CPO all need investment. Until CapEx peaks (late CY26), little free cash despite strong OP.
- Industrial (~25% of rev) flat to declining; semicap improving but slow. Materials weak on auto/EV SiC. Semicap bookings up, contribution slow. Hyperscaler backward integration in 10-K. Lumentum + Broadcom compete; SiPho/VCSEL at higher speeds.
Next 12 Months
- Q4 FY26 guide $1.91-$2.05B (mid $1.98B record); GM 39-41%; EPS $1.52-$1.72. A beat >$2.05B with GM ≥41% extends the multiple. Miss or weak FY27 commentary compresses P/E 66x → 50x. FY27 growth above FY26 is the forward statement.
- Initial CPO scale-out revenue H2 CY26 — execution proof point for NVIDIA partnership. Multi-CPO solutions (high-power CW + ELS + FAU + isolators + TECs). Engaged with customers beyond NVIDIA. Multi-Rail H1 CY27. Thermal H2 CY27.
- 6-inch InP doubles next quarter (1Q early); GM expansion toward >42% target. Investor Day: GM >42%, OM >24% in 3-4 yrs. Q3 GM 39.6%; Q4E mid 40%. 1.6T mix + 6-inch cost reduction + divestitures are primary levers.
Next 12-24 Months
- CPO scale-up CY27 + 4x InP capacity by end CY27 = the structural growth thesis. CPO SAM $15B+ by 2030 — larger than today's entire pluggable transceiver market. Scale-up "orders of magnitude larger" than scale-out. NVIDIA LTA + multi-customer.
- 3.2T + 6.4T transceiver development; Multi-Rail H1 CY27 ($2B+); thermal solutions H2 CY27. Industry-first 400G EML demos at OFC 2026. Multi-Rail addresses inter-DC bandwidth. Thermadite + thermoelectric generators move industrial tech into AI DCs.
- FCF recovery + GM trajectory toward >42% target unlock the next P/E re-rating. CapEx peak late CY26; FCF recovery CY27. GM 39.6% Q3 → >42% target in 3-4 yrs. Each 100bps GM = ~$80M EBITDA. Margin lever drives EPS growth above revenue.
Core Metrics Scorecard
| Q1'22 | Q2'22 | Q3'22 | Q4'22 | Q1'23 | Q2'23 | Q3'23 | Q4'23 | Q1'24 | Q2'24 | Q3'24 | Q4'24 | Q1'25 | Q2'25 | Q3'25 | Q4'25 | Q1'26 | Q2'26 | Q3'26 | Q4'26E | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quarter End | Sep21 | Dec21 | Mar22 | Jun22 | Sep22 | Dec22 | Mar23 | Jun23 | Sep23 | Dec23 | Mar24 | Jun24 | Sep24 | Dec24 | Mar25 | Jun25 | Sep25 | Dec25 | Mar26 | Jun26 |
| R40 > 40% | ✅ | ✅ | ✅ | ✅ | ✅ | |||||||||||||||
| R40 accelerate | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | |||||||
| TTM OP QoQ > 10% | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ||||||||||||||
| TTM OP QoQ accelerate | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ||||||||||||||
| TTM FCF/OP > 60% | ✅ | ✅ | ❌ | ❌ | ❌ | ❌ | ❌ | ✅ | ✅ | ✅ | ✅ | ✅ | ❌ | ❌ | ❌ | ❌ | ❌ | ❌ | ❌ | ❌ |
| Debt/EBITDA < 3.5 | ✅ | ✅ | ✅ | ✅ | ❌ | ❌ | ❌ | ❌ | ❌ | ❌ | ❌ | ❌ | ❌ | ❌ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ |
| Total passes | 3 | 2 | 3 | 2 | 2 | 1 | 2 | 4 | 1 | 3 | 2 | 2 | 3 | 2 | 3 | 2 | 3 | 1 | 2 | 4 |
| Stock QoQ | -18% | +15% | +6% | -30% | -32% | +0% | +9% | +34% | -37% | +30% | +42% | +21% | +22% | +7% | -31% | +37% | +21% | +71% | +29% | +45% |
| P/E ttm | 25x | 32x | 41x | 36x | 132x | -50x | -32x | -25x | -16x | -23x | -32x | -44x | -98x | -15007x | 62x | 58x | 37x | 56x | 64x | 66x |
- Q3 FY26 scored 2/6 → Q4 FY26E projects 4/6 — first time R40 passes >40% threshold (49% projected). Scorecard suppressed because R40 individually moderate (rev +20%, OM 15-17%). Stock surged 11x in 8 qtrs on TTM OP speed + P/E expansion rather than R40.
- FCF/OP remains the persistent weakness — fails through CY26 on capacity CapEx intensity. Heavy CapEx ($290M Q3, rising) for InP doubling + assembly/test + OCS/CPO. CapEx peak late CY26; FCF recovery CY27. If AI demand softens before peak, investment cycle = liability.
- Debt/EBITDA collapsed 5.1x → 0.5x post NVIDIA $2B equity — best balance sheet position in years. Failed Q1'23-Q2'25 (8 qtrs) on merger debt + depressed earnings. TTM OP recovery + divestitures + NVIDIA equity all paid down. Below 1x clears scorecard pass; gives runway to invest through the cycle.
Chart: R40 vs Stock Price (Since 2020)
Chart: Scorecard Total Passes vs Stock Price (Since 2020)
Source: SEC EDGAR annual and quarterly filings, company earnings conference calls and presentations.
Disclaimer: This report is for educational purposes only. NO investment advice.