Coherent Corp. shares staged a strong recovery on Friday, closing up 5.03% at $335.26 after a steep 7.39% decline on Thursday following its fiscal third-quarter earnings release. The bounce reflects investor focus on the company's pivotal role in the surging AI data-center market, where demand for high-speed optical interconnects continues to outstrip supply.
Strong Earnings Amid Capacity Race
For the fiscal third quarter ended March 2026, Coherent reported revenue of $1.81 billion, a 20.5% increase year-over-year. GAAP gross margin improved to 37.7%, while adjusted earnings came in at $1.41 per share. Management guided for current-quarter revenue between $1.91 billion and $2.05 billion, with adjusted earnings of $1.52 to $1.72 per share. CEO Jim Anderson highlighted "another quarter of strong financial performance," noting accelerating revenue growth, margin expansion, and improved profitability, driven by robust demand in data-center and communications segments.
Data Center and Communications revenue reached $1.36 billion in the quarter, up from $969 million a year ago, representing 75% of total sales. Industrial revenue declined to $444 million from $529 million. The company is aggressively expanding capacity, particularly at its Sherman, Texas facility, to boost production of indium phosphide-based optical components critical for high-speed data transmission. CFO Sherri Luther confirmed that capital spending is ramping to support this growth.
Nvidia Partnership Fuels Growth
Nvidia has committed $2 billion in investment and purchase agreements with Coherent, with multibillion-dollar orders for advanced laser and optical networking gear. This partnership underscores Coherent's position as a key supplier for AI data-center infrastructure, where optical connections using light rather than electricity carry data between chips and racks. During the earnings call, Anderson noted that orders saw a "step-function increase" and backlogs hit record highs. Shipments have begun for transceivers using components from the company's newer 6-inch wafer lines, which promise higher throughput and lower costs.
Wall Street Optimism
Analysts have taken notice. Rosenblatt raised its price target on Coherent to $425 from $375, maintaining a Buy rating, citing transceivers and optical circuit switching as key fourth-quarter drivers. The firm noted that margins could reach the upper end of Coherent's 39% to 41% guidance range. Peers are also signaling strong demand: Lumentum reported fiscal third-quarter revenue of $808.4 million, up 90.1% year-over-year, with June quarter guidance of $960 million to $1.01 billion. CEO Michael Hurlston attributed margin gains to pricing discipline and favorable product mix.
Supply Chain Scramble
The optical capacity race extends beyond Coherent. Corning and Nvidia announced plans to increase U.S. optical connectivity output tenfold and boost domestic fiber production by over 50%, adding three new facilities in North Carolina and Texas. This broader industry effort highlights the critical need for optical infrastructure to support AI workloads.
Risks Remain
Despite the positive momentum, risks persist. Coherent noted that tariffs and export rules had minimal impact on third-quarter results but warned that ongoing global trade disruptions could increase costs, slow production, or reduce revenue. Any delay in capacity ramp-up, a decline in demand, or margins falling short of expectations could quickly erode the stock's AI premium. Investors remain watchful as the company navigates these challenges in a rapidly evolving market.
