Shares of Coherent Corp (COHR) closed Friday at $335.26, up 5.03%, recovering from a volatile period following its earnings report. The optical networking company's fiscal fourth-quarter revenue forecast of $1.91 billion to $2.05 billion exceeded the $1.91 billion consensus estimate from analysts polled by LSEG, reigniting investor enthusiasm.
The company's fiscal third-quarter revenue surged 21% year-over-year to $1.81 billion, with adjusted earnings of $1.41 per share. Non-GAAP gross margin improved to 39.6%, up 105 basis points from the same period last year. Nearly 75% of revenue came from the data-center and communications segment, where sales jumped 37% from a year ago and 13% sequentially.
Chief Executive Jim Anderson cited "exceptionally strong" demand driven by AI infrastructure buildouts, noting that Coherent is rapidly expanding capacity. However, he highlighted that indium phosphide supply remains a key constraint for both Coherent and its peers. The company now expects to double its internal indium phosphide capacity a quarter ahead of schedule and more than double it again by the end of calendar 2027, transitioning to 6-inch wafers for improved efficiency and lower costs.
Nvidia's involvement underscores the strategic importance of Coherent's technology. According to Coherent's latest quarterly report, Nvidia invested $2 billion in March through a private deal and signed a multi-year agreement involving multi-billion-dollar purchase commitments. The pact grants Nvidia rights to capacity on advanced laser and optical networking gear, highlighting the growing role of optical components in AI data-center infrastructure.
Despite the strong demand, margin expansion remains a key concern. Barclays analysts noted that gross margins climbed only 100 basis points year-over-year, even with data-center revenue growth and business exits. Stifel analysts echoed that margin gains are a recurring talking point after results. Chief Financial Officer Sherri Luther pushed back, noting that gross margins have improved in seven of the last eight quarters and that the company targets north of 42% through cost cuts, better yields, and pricing.
The competitive landscape remains favorable. Lumentum, a rival in photonic gear for AI data infrastructure, projected fourth-quarter revenue of $960 million to $1.01 billion, surpassing the $908.3 million consensus. Reuters reported that customers are locking in longer-term contracts amid limited supply.
Risks persist. Coherent's filings flagged potential impacts from global trade disruptions, which could affect revenue, margins, and production. CoreWeave recently raised its minimum 2026 capex guidance, citing pricier components. If Coherent's capacity ramp falls behind schedule or new supply yields disappointing margins, the stock may continue to trade more like a bottlenecked manufacturer than a pure AI play.
