Shares of Coherent Corp. (NYSE: COHR) surged more than 12% in morning trading Tuesday, propelled by reports that the U.S. government is considering restrictions on Chinese optical transceivers. The stock climbed to $323.86 by 10:53 a.m. EDT, adding roughly $7 billion to the company's market capitalization. The rally pushed the consensus price-to-earnings multiple for fiscal 2027 to 38.7 times, up from 34.4 times at Monday's close.
The potential policy shift, first reported by Reuters, centers on proposed Federal Communications Commission (FCC) rules that would limit the use of new Chinese optical transceiver models in U.S. networks. Officials indicated the proposal could be released within the year, though it remains subject to revision or withdrawal before publication. The move is aimed at safeguarding data centers from malware, data theft, and operational disruption, according to sources familiar with the matter.
Investors interpreted the news as a potential boon for domestic manufacturers like Coherent and Lumentum Holdings (NASDAQ: LITE), which could capture market share if Chinese suppliers are restricted. Lumentum shares rose 6.8%, while Applied Optoelectronics (NASDAQ: AAOI) advanced 17.4% and Marvell Technology (NASDAQ: MRVL) gained 10.7%.
However, the supply chain picture is complex. Zhongji Innolight, a Chinese company, controls an estimated 27% of the global data-center transceiver market. Coherent and Lumentum currently lack the scale to fully replace Chinese vendors, which could lead to higher costs for cloud providers such as Amazon (NASDAQ: AMZN) and others. The potential restrictions come amid broader trade tensions, with China's embassy warning of possible retaliation.
Coherent's business is heavily exposed to the data-center segment. In its most recent quarter, datacenter and communications revenue totaled $1.362 billion, representing 75.4% of total revenue and a 40.6% year-over-year increase. Industrial revenue declined 16.1% to $444 million. CEO Jim Anderson highlighted "exceptionally strong demand" across these segments, and the company has been expanding production capacity.
The trade dispute is also affecting upstream materials. China produced 70% of the world's indium in 2024, and export controls have driven prices for six-inch indium-phosphide wafers up 250% to around $5,000. Coherent is doubling its wafer output in Texas this year, with further expansion planned for late 2027, but supply constraints could pressure margins.
Looking ahead, Coherent is scheduled to report fiscal fourth-quarter results on August 12. The company's non-GAAP EPS guidance midpoint stands at $1.62, in line with consensus estimates. Revenue guidance midpoint is $1.98 billion, implying a 9.7% sequential increase. Analysts will be watching margin trends closely, as the company guided non-GAAP gross margin to a midpoint of 40.0%, up 40 basis points from the prior quarter.
The potential ban could strengthen Coherent's competitive position, but risks remain. The FCC may alter or withdraw the proposal, China could retaliate, and cloud clients might delay purchases. With the stock trading at 38.7 times fiscal 2027 earnings estimates, there is little room for disappointment in the upcoming earnings report.
