Coherent (COHR) just gave investors another reason to buy COHR stock. The company recently said its AI chip customers have started testing a new 300mm silicon carbide substrate. This is a material built to pull heat away from next-generation processors up to 25% more effectively than current options. The news has grabbed the market’s attention, with COHR stock jumping almost 8% in a single trading session on Aug. 17.
On its own, a material sample sounds minor, but it fits a bigger pattern. The largest hurdles of AI are no longer just about chip speed. Two physical problems increasingly hold performance back: Getting rid of heat and moving data fast enough between chips. Coherent is solving both bottlenecks at once. CEO James Anderson put it simply on the recent earnings call, saying AI “runs on compute, but it scales on optical connectivity.” The silicon carbide news tackles the heat problem, while Coherent's main optics business handles the data-movement one.
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It also helps that this news comes at a strong moment for the company. Just days earlier, Coherent posted record quarterly revenue of $2.05 billion, up 34% from a year ago. AI-driven data center and communications segment revenue surged 59%, and now makes up nearly 80% of the business. Management guided higher again and expects to top $3 billion in quarterly revenue by the end of fiscal 2027. In response to the quarterly report, many analyst firms lifted their price targets for Coherent stock.
There’s also a big name betting on Coherent. Nvidia (NVDA) recently disclosed a stake worth around $2 billion. For a company supplying the parts behind the AI buildout, having Nvidia in your corner says plenty.
About Coherent Stock
Coherent develops and sells lasers, optical components, transceivers, and other photonics technologies worldwide. The company primarily serves the data center, communications, industrial, and semiconductor markets. Founded in 1966, the company is headquartered in Saxonburg, Pennsylvania.
Over the past year, COHR stock has delivered outstanding returns, surging around 230%. This is well above the S&P 500's ($SPX) gain of 21% during the same period. The company’s strong stock performance has been primarily driven by booming AI data-center demand, which has fueled rapid growth in its optical transceivers, silicon photonics, and networking products. Strong financial results, margin expansion, and growing investor confidence in the company’s position as a key supplier of AI-related technologies has further contributed to the rally.
www.barchart.com Coherent’s valuation reflects strong investor confidence. The forward price-to-earnings (P/E) of 36.9 times has no meaningful historical average to compare against, since the company only recently turned consistently profitable again. The price-to-sales (P/S) ratio of 7.9 times tells a clearer story, sitting well above the five-year average. So, the market is paying a steep premium as the company continues to post record revenue quarter after quarter.
The EPS outlook helps justify the P/S multiple. Analysts expect growth of 61% in fiscal 2027 and 44% in fiscal 2028. That is a strong and durable EPS trajectory for a business already worth well over $50 billion. Looking at the balance sheet, Coherent also currently holds net debt of roughly $1.56 billion, which seems manageable for a company of this scale.
So, the premium is undoubtedly steep, leaving little room for error if AI demand cools. But with data-center business sold out years ahead and earnings compounding fast, the premium looks earned.
Coherent Outlines Path to Sustained Double-Digit Growth
Coherent reported its fourth-quarter fiscal 2026 earnings on Aug. 12. The company posted revenue of $2.05 billion, up 34% year-over-year (YOY) and comfortably beating the Wall Street consensus of $1.98 billion. The data center and communications segment continued to be Coherent's biggest growth driver, accounting for 79% of total revenue in Q4 and posting 59% YOY growth. Data center revenue rose 66% YOY while communications revenue increased 56% YOY. Non-GAAP EPS came in at $1.74, up 74% YOY, while gross margin for the quarter was 40.2%. CFO Sherri Luther said that the company’s capital expenditures increased to $556 million, supporting future growth across Coherent's data center and communications business.
Going forward, Coherent guided for revenue of $2.2 billion to $2.4 billion for Q1 fiscal 2027. Management expects non-GAAP gross margin between 39.5% and 41.5% as well as EPS between $1.85 and $2.05 on a non-GAAP basis. The company expects continued margin improvement over time as six-inch indium phosphide production ramps and new products begin contributing. Luther also noted that the company expects capex to increase sequentially again in Q1 2027. Moreover, management now expects to reach its first quarter above $3 billion in revenue by the end of fiscal 2027.
What Do Analysts Expect for COHR Stock?
TD Cowen analyst Sean O’Loughlin recently reiterated a “Buy” rating on COHR stock with a price target of $395. The analyst believes Coherent is entering a period of faster growth with better visibility into future revenue. O’Loughlin highlighted that management expects quarterly revenue to reach $3 billion by Q4 2027, which suggests the company could grow much faster than it has in recent years, driven by strong demand for data center and communications products.
Based on 22 analysts with coverage, COHR stock holds a consensus “Strong Buy” rating. Of those analysts, 15 have a “Strong Buy” rating, one analyst has a “Moderate Buy,” and six offer a “Hold” rating. The mean price target of $408.70 implies potential upside of 42% from current levels. The highest price target is $500 while the lowest target is $279, which suggests that Wall Street remains divided on Coherent’s AI capabilities.
www.barchart.com On the date of publication, Jabran Kundi did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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