Both Coherent Corp. COHR and Arm Holdings ARM are technology companies whose business models focus heavily on advanced hardware and innovation at the core of modern computing.
ARM is best known for its semiconductor IP, providing chip architectures that power a vast share of smartphones, servers and increasingly AI-focused processors. COHR, on the other hand, operates in the realm of photonics, lasers and optical components, enabling the ultra-fast connectivity and precision manufacturing that form the backbone of today’s data and electronics industries.
The two companies compete for investor interest in high-growth, innovation-driven segments of the tech infrastructure ecosystem.
COHR’s Case
The AI opportunity extends well beyond the construction of new data centers. Existing facilities must continually upgrade as newer GPUs, switches and networking platforms require greater bandwidth. As AI clusters expand, more connections are needed among processors, racks, switches and facilities, increasing the importance of high-speed optical networking.
This trend plays directly into Coherent’s strengths. Its portfolio includes indium phosphide lasers, VCSELs, silicon photonics, specialty fiber, detectors and micro-optics. That broad technological base gives the company multiple ways to benefit as data-center operators shift toward faster, denser and more power-efficient network architectures.
Continued improvements in AI models, falling inference costs and broader commercial adoption could further stimulate computing requirements. As AI becomes embedded in more applications, network capacity should become increasingly critical alongside computing power.
PhotonLink could strengthen Coherent’s position by moving the company further beyond individual components and into integrated optical subsystems. Combining internally developed technologies with integration, assembly and testing capabilities enables Coherent to capture a greater portion of the value created within an AI system.
This approach could also deepen customer relationships. Replacing a single component supplier is generally simpler than switching a provider whose subsystem has been designed and qualified within a broader architecture.
Coherent is also positioned across multiple technology pathways, including conventional pluggable optics, co-packaged optics, near-packaged optics and chip-to-chip connectivity. This diversified exposure reduces dependence on any single optical architecture becoming the dominant industry standard.
ARM’s Case
The accelerating pace of AI infrastructure development presents a significant opportunity for Arm. Technology companies are committing substantial resources to build data centers, develop advanced processors and expand computing capacity to support increasingly sophisticated AI applications.
AI developer Anthropic's ambitious infrastructure spending plans underscore the massive investments required to support next-generation AI models. Meanwhile, major cloud providers, including Alphabet GOOG and Microsoft MSFT, continue investing heavily in AI infrastructure and computing technologies. These investments should support sustained demand for advanced semiconductor architectures.
Arm Holdings stands to benefit from this transition through its energy-efficient processor designs, which are increasingly relevant to cloud computing, AI inference and edge applications. As computing workloads become more demanding, the need for processors capable of delivering higher performance without excessive power consumption should strengthen the company's market opportunities.
Additionally, the growing adoption of Arm-based architectures across data centers could diversify its revenue sources beyond smartphones, supporting a more balanced long-term growth profile.
The emergence of autonomous AI agents is creating additional opportunities for central processing units (CPUs). Unlike conventional AI applications primarily focused on model training, agentic systems require considerable general-purpose processing capabilities to coordinate tasks, manage workflows and execute instructions.
This development could accelerate demand for energy-efficient CPUs alongside specialized AI accelerators. Arm Holdings' expanding processor portfolio positions it to capture opportunities as enterprises deploy more sophisticated AI systems across cloud environments.
How Do Zacks Estimates Compare for COHR & ARM?
The Zacks Consensus Estimate for COHR’s fiscal 2027 sales and EPS indicates year-over-year growth of 50% and 68%, respectively. EPS estimates have been trending flat over the past 60 days.
The Zacks Consensus Estimate for ARM’s current-year sales suggests 22% year-over-year growth, while EPS is expected to grow 24%. EPS estimates have been trending flat over the past 60 days.
COHR’s Valuation Reflects Strong Growth Potential
While COHR appears attractively valued with a forward 12-month P/E of 20.34X versus its median of 39.95X, ARM's higher forward P/E of 82.79X, below its median of 145.78X, reflects investor confidence in its strong earnings growth potential.
Coherent Stands Out as the Better Placed
Coherent appears better positioned than Arm Holdings, supported by its accelerating exposure to AI-driven optical networking demand, diversified photonics portfolio and expanding opportunities in integrated optical subsystems. Growing investments in AI infrastructure and increasing demand for high-speed connectivity should strengthen Coherent’s long-term growth prospects. Although Arm benefits from rising adoption of energy-efficient processors across data centers and AI applications, its elevated valuation leaves less room for potential disappointments. Coherent’s stronger projected earnings and revenue growth, coupled with its relatively attractive valuation, gives it an edge.
COHR and ARM currently carry a Zacks Rank #3 (Hold) each. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Radical New Technology Could Hand Investors Huge Gains
Quantum Computing is the next technological revolution, and it could be even more advanced than AI.
While some believed the technology was years away, it is already present and moving fast. Large hyperscalers, such as Microsoft, Google, Amazon, Oracle, and even Meta and Tesla, are scrambling to integrate quantum computing into their infrastructure.
Senior Stock Strategist Kevin Cook reveals 7 carefully selected stocks poised to dominate the quantum computing landscape in his report, Beyond AI: The Quantum Leap in Computing Power .
Kevin was among the early experts who recognized NVIDIA's enormous potential back in 2016. Now, he has keyed in on what could be "the next big thing" in quantum computing supremacy. Today, you have a rare chance to position your portfolio at the forefront of this opportunity.
See Top Quantum Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
ARM Holdings PLC Sponsored ADR (ARM): Free Stock Analysis Report
Coherent Corp. (COHR): Free Stock Analysis Report
Alphabet Inc. (GOOG): Free Stock Analysis Report
Microsoft Corporation (MSFT): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).