Bull of the Day: Coherent (COHR)

Coherent (COHR), a $29 billion laser-technology and photonics leader, is riding the AI/datacenter buildout with revenues projected to nearly double from $3.3B (trailing 12 months to June 2022) to $6.7B by fiscal June 2026 and steady ~15% top-line growth; the stock has rallied ~290% and consensus EPS was lifted ~9.6% after a beat-and-raise, with profits expected to jump ~42% to just over $5 this year. Key catalysts include a strategic NVIDIA partnership to develop silicon-photonics co‑packaged optics for hyperscale GPU interconnects—potentially embedding Coherent in NVIDIA’s datacenter ecosystem—and a multiyear Apple supply agreement to provide VCSELs for Face ID from its Sherman, Texas facility. The company also monetized its Aerospace & Defense unit for $400M, underscoring a sharpened focus on optical components for communications and AI infrastructure, positioning Coherent to benefit materially from continued datacenter and device demand.

Analysis

Coherent is positioned as a direct beneficiary of the AI/datacenter buildout with a market value near $29 billion and revenues forecast to rise from a trailing $3.3 billion (to June 2022) to $6.7 billion by fiscal June 2026. Management and analysts are pricing meaningful margin expansion: revenues growing at roughly a 15% clip and EPS expected to jump ~42% this fiscal year to just over $5 after a September quarter beat-and-raise that lifted current-year consensus EPS about 9.6%.

Two discrete commercial catalysts underpin the upside: a March GTC partnership with NVIDIA to develop silicon-photonics co‑packaged optics for hyperscale GPU interconnects, which could embed Coherent into NVIDIA’s datacenter stack, and a multiyear Apple agreement to supply VCSELs for Face ID manufactured at its Sherman, Texas facility. Both agreements link Coherent to large, repeatable OEM demand streams and help explain the ~290% share-price appreciation year-to-date.

The company’s $400 million sale of its Aerospace & Defense unit to Advent signals a strategic focus on optical components and photonics for communications and AI infrastructure, improving capital allocation optionality but increasing revenue concentration on datacenter and device end markets. Given the positive sentiment and elevated valuation implied by recent share gains, near-term execution on NVIDIA integration, Apple supply continuity, quarterly beats and margin delivery will be the primary drivers of shares going forward.

Key Decisions for Investors

• Consider adding or initiating a position to gain exposure to AI/datacenter photonics given the revenue and EPS trajectory and strategic OEM partnerships, but size allocations conservatively after a ~290% run-up
• Monitor execution milestones closely—NVIDIA CPO integration progress, Apple VCSEL shipments from Sherman, and quarterly beat-and-raise updates—and trim or hedge if guidance or execution lags consensus
• If already materially exposed, take partial profits or implement downside protection (e.g., collars or puts) to lock gains while retaining upside to further datacenter-driven demand