Coherent Corp. (NYSE: COHR) experienced a sharp reversal in after-hours trading on Wednesday, with shares dropping 7.2% to $330, nearly wiping out an 8.2% gain from the regular session. The pullback came despite the company reporting fiscal fourth-quarter results that surpassed analyst expectations, underscoring the market's elevated expectations for the AI-optics sector.
The photonics manufacturer posted revenue of $2.05 billion for the quarter, a 34% increase year-over-year and 3.3% above consensus estimates. Adjusted earnings per share came in at $1.74, beating the $1.62 forecast. However, investors appeared more focused on the company's margin trajectory than its headline numbers.
Datacenter and communications revenue, a key growth driver, surged 59% to $1.62 billion, representing 79% of total quarterly revenue, up from 67% a year earlier. Non-GAAP gross margin expanded to 40.2%, up 215 basis points from the prior year, but the company's guidance for the next quarter suggests only modest sequential improvement.
For the fiscal first quarter of 2027, Coherent expects revenue between $2.20 billion and $2.40 billion, with a midpoint of $2.30 billion, implying roughly 12% sequential growth. However, the gross margin midpoint of 40.5% is only 30 basis points higher than the just-reported quarter, signaling that heavy capacity investments are still weighing on profitability.
CEO Jim Anderson highlighted the company's strong customer demand and expanding production capabilities. "We enter fiscal 2027 with exceptional customer demand, expanding production capacity, and multiple new growth platforms beginning to ramp," he said. The company now sees more than $20 billion of added serviceable market by 2030.
Coherent's internal indium-phosphide output is expected to double by the end of the year and then more than double again during 2027, reflecting aggressive capacity expansion to meet AI-driven demand. This ramp-up, while necessary, is a key reason why margin growth is expected to be gradual.
Peer results have also raised the bar. Lumentum Holdings (LITE) reported a 50.4% adjusted gross margin earlier on Wednesday, with a strong outlook that initially lifted Coherent shares before the earnings release. Wall Street remains broadly bullish on Coherent, with four of six recent analysts rating it a buy and an average price target of $415, though targets range from $330 to $465.
Coherent also enjoys strategic support from NVIDIA (NVDA), which invested $2 billion in March and committed to multi-billion-dollar purchases of optical products. This backing underscores the company's importance in the AI infrastructure supply chain.
Risks remain, including execution on capacity ramps, customer concentration, and potential export controls. For investors, the key test is whether Coherent can convert its expanding optics capacity into faster margin growth. The market's reaction suggests that a revenue beat alone may no longer be sufficient to justify the stock's elevated valuation.
