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
Coherent's transformation has been fueled by booming demand for AI infrastructure. The company's Datacenter & Communications segment has become its primary growth engine, accounting for 75% of third-quarter fiscal 2026 revenues while delivering 41% year-over-year growth.
This shift is significant because it changes the company's revenue profile. Historically, hardware manufacturers have been exposed to short product cycles and volatile demand. Today, Coherent is increasingly tied to long-duration AI infrastructure spending, providing investors with greater confidence in future earnings.
Unlike traditional semiconductor hardware cycles, AI-related investments are supported by large-scale cloud deployments and multi-year capital spending plans, making demand considerably more predictable.
One of the biggest positives for Coherent is the dramatic improvement in order visibility.
Rather than experiencing the typical cyclical increase in hardware demand, the company is witnessing a step-change in customer commitments. Record backlog levels now extend into calendar 2028, while long-term supply agreements stretch through 2030.
This level of visibility substantially lowers the risk that new manufacturing investments become underutilized during an economic slowdown.
To support this unprecedented demand, Coherent invested approximately $290 million in capital expenditures during the third quarter of fiscal 2026, more than doubling spending from the prior-year period.
Importantly, this aggressive capacity expansion is backed by contractual customer commitments rather than speculative demand forecasts.
The surge in AI-related demand is translating directly into stronger profitability for COHR.
Higher factory utilization and improved supply chain efficiencies contributed to a 163-basis-point expansion in the adjusted operating margin during the third quarter. Meanwhile, adjusted net income climbed nearly 56% year over year, highlighting the operating leverage created by rising production volumes.
As manufacturing assets become increasingly utilized, incremental revenues are flowing through to earnings at a faster pace, improving the overall quality of Coherent's financial performance.
This combination of expanding margins and stronger earnings suggests the company is benefiting not only from higher sales but also from greater operational efficiency.
ARM’s Case
ARM has built one of the semiconductor industry's strongest competitive advantages through a deeply interconnected ecosystem linking software developers and hardware manufacturers. This two-sided network has evolved into a durable competitive moat that becomes stronger as adoption continues to expand.
The company's architecture has become the preferred standard for device manufacturers because of its broad compatibility with leading operating systems, including Android, iOS, Windows and Linux. This extensive software support gives hardware manufacturers confidence that Arm-based processors will seamlessly run widely used applications, developer tools and enterprise software across multiple computing environments.
The benefits extend equally to software developers. As more hardware companies adopt Arm Holdings' architecture, developers gain immediate access to an enormous installed base of devices, creating greater incentives to optimize applications for Arm-powered systems. Every additional hardware partner strengthens the software ecosystem, while broader software compatibility attracts even more hardware manufacturers.
This self-reinforcing cycle has helped ARM establish an exceptionally strong competitive position. The company's intellectual property now powers nearly every smartphone globally, creating significant barriers for competitors seeking to challenge its dominance in mobile CPU architecture.
While Arm Holdings has traditionally been known for licensing its processor designs, the company is increasingly expanding its presence across AI infrastructure. Its newly introduced Arm AGI CPU has been specifically designed to address the emerging era of agentic artificial intelligence, where autonomous AI agents continuously process and execute increasingly complex workloads.
The Arm AGI CPU is positioned as a highly efficient alternative to conventional x86 processors. According to the company, the processor delivers superior rack-level performance while improving overall infrastructure efficiency. The architecture is also designed to reduce capital expenditures for customers while enabling more efficient scaling of AI workloads across cloud and enterprise environments.
This initiative represents a strategic evolution beyond ARM's traditional licensing model. Rather than serving solely as a processor architecture provider, the company is increasingly positioning itself as a core infrastructure platform supporting the next generation of AI-powered data centers.
How Do Zacks Estimates Compare for COHR & ARM?
The Zacks Consensus Estimate for COHR’s fiscal 2026 sales and EPS indicates year-over-year growth of 22% and 55%, respectively. EPS estimates have been trending upward over the past 60 days.
The Zacks Consensus Estimate for ARM’s current-year sales suggests 20% year-over-year growth, while EPS is expected to grow 19%. EPS estimates have been trending downward 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 36.5X versus its median of 39.2X, ARM's higher forward P/E of 120.7X, below its median of 122.9X, reflects investor confidence in its strong earnings growth potential.
Why Coherent Appears to Be the Better Pick
While both companies are well positioned to benefit from the AI infrastructure buildout, Coherent emerges as the more compelling investment. The company combines accelerating demand, improving profitability, and exceptional revenue visibility through long-term customer commitments, reducing the uncertainty typically associated with hardware businesses. Its expanding role in AI networking infrastructure provides exposure to a critical segment of the AI ecosystem, while operational efficiencies continue to enhance earnings quality. Although Arm possesses a powerful competitive moat, its premium valuation and moderating earnings outlook leave less room for upside. Coherent offers a stronger balance of growth, visibility, and valuation.
While COHR carries a Zacks Rank #2 (Buy), ARM carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Beyond Nvidia: AI's Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
See 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
This article originally published on Zacks Investment Research (zacks.com).