Coherent Corp. (NYSE:COHR) shares surged 9.2% on Monday, closing at $425.38, as investors focused on the company's strategic expansion of indium phosphide (InP) wafer capacity rather than the modest size of a government grant. The rally brought the stock near its 52-week high, with trading volume of 7.03 million shares aligning with the 65-day average.
CHIPS Act Signal Drives Sentiment
The catalyst was a letter of intent signed last week for up to $50 million in CHIPS Act funding to expand Coherent's 6-inch InP plant in Sherman, Texas. The project aims to double manufacturing space and quadruple wafer output, addressing a critical bottleneck in AI data center infrastructure. While the grant is small relative to Coherent's $80 billion market cap, it signals U.S. government support for domestic production of indium phosphide, a compound semiconductor essential for high-speed optical chips used in data transmission.
China's tightened export controls on indium, announced in February 2025, have heightened supply chain risks. China accounts for nearly 70% of global indium output, and increased checks on indium phosphide exports underscore the strategic importance of Coherent's Texas expansion. Investors are betting on a potential bottleneck, driving the stock higher despite a price-to-earnings ratio above 200.
AI Optical Networking Demand
Coherent's technology is critical for AI data centers, where optical components enable faster data transfer. The company's multiyear agreement with Nvidia, announced in March, includes a $2 billion investment and a multibillion-dollar purchase commitment. Nvidia CEO Jensen Huang highlighted the partnership's role in building AI infrastructure at "unprecedented scale, speed and energy efficiency."
Bill Frauenhofer, Executive Director for Semiconductor Investment and Innovation at the Department of Commerce, emphasized that "indium phosphide photonics are essential" for fast data transmission. Coherent CEO Jim Anderson called semiconductor photonic devices "essential building blocks of AI infrastructure."
Competitive Landscape and Market Context
Coherent faces competition from Lumentum (NASDAQ:LITE), which also has an optics deal with Nvidia, and Marvell Technology (NASDAQ:MRVL), whose recent comments on optical chips boosted optical-component stocks. Analysts at Baptista noted investor optimism around "optical content per AI rack" increasing soon.
Coherent's inclusion in the S&P 500 in March has broadened its investor base, but the stock's 130% year-to-date gain leaves little margin for error. Risks include potential delays in CHIPS Act funding, China's export controls, and any slowdown in Nvidia's demand for optical components.
Coherent's rally reflects a broader theme: the AI trade is increasingly rewarding companies that enable data transfer, not just compute. As supply chain vulnerabilities persist, Coherent's Texas expansion positions it as a key player in the AI infrastructure buildout.
