Layer 4 · COHR — Coherent Corp
Thesis
Optical components and laser systems supplier — Coherent (post the II-VI / Coherent merger) is the diversified optical platform that captures the AI datacom ramp through 800G/1.6T transceivers, indium-phosphide lasers, and the SiC/photonic-IC layer. Q3 FY26 (May 6) was a revenue beat with a modest EPS miss — the kind of "good but not perfect" print that gets a +400% one-year stock to consolidate, not crash. Tier B because the rerating has been violent (+400% TTM) and the EPS miss tells you the operating leverage is not yet bulletproof; needs one more clean print before earning Tier A.
What it does + financial print
Coherent sits across multiple Layer 4 bottlenecks: datacom transceivers (the optical modules that connect every GPU to every switch), indium-phosphide laser diodes (the source for high-speed datacom), silicon carbide power semis (the EV / power-electronics business — separately monetisable), industrial lasers and optical instruments (the legacy II-VI book, cyclical but high-margin). The AI mix has grown materially over the last six quarters as the datacom transceiver revenue scaled into 800G — Coherent now derives an estimated 30-40% of revenue from AI / datacom optical, with the rest split between communications, industrial and semiconductor capital equipment.
Q3 FY26 (May 6): revenue $1.81B vs $1.78B consensus (clean beat), EPS $1.41 vs $1.43 (modest miss). Guidance constructive on AI optics. Jefferies PT raised to $375. Stock ATH $413, +400% trailing year. Currently $385.40 on May 17 — has held above the post-print levels but not breaking out.
Bull case
The 800G → 1.6T transceiver transition pulls Coherent revenue and margin together: 1.6T modules carry ~2x the ASP of 800G with materially better gross margin once volumes scale. The SiC power-electronics business is a free option — if Coherent monetises it through divestiture or spin (semi-frequent management commentary suggests this is on the table), the optical-pure-play remaining business rerates to a higher multiple. Customer concentration is more diversified than the smaller photonics peers (AAOI, Lumentum) — Coherent ships across the named hyperscalers and into telecom carriers.
Gap / bear case
+400% TTM with an EPS miss is the early-warning signal that operational execution is not yet at the level the multiple requires. Coherent's gross margin is lower than the pure-play AI photonics names (Lumentum, AAOI on a normalised basis) because the legacy II-VI industrial mix dilutes the headline number — and that dilution may continue if the industrial-laser cycle stays weak. SiC pricing has compressed materially over the last two quarters as Chinese capacity floods the market; the SiC slice of Coherent's revenue is a drag, not a tailwind.
Trigger to upgrade / downgrade
Upgrade to Tier A on (a) Q4 FY26 print delivering both rev AND EPS beat with an explicit 1.6T volume disclosure, AND (b) clarity on the SiC business (divest, spin, or run-rate). Downgrade on a second consecutive EPS miss or SiC pricing-led gross margin compression below 35%.
The trade
- Entry zone: $340-365 on pullback
- Stop: $315 close
- Position size: 1.5% NLV at zone
- Catalyst date: Q4 FY26 print August 12 2026
- Conviction: 7/10