Why Coherent Stock Tanked by Nearly 20% on Thursday

Coherent (NYSE: COHR) shares plummeted nearly 20% despite reporting Q4 FY2025 revenue of $1.53 billion and adjusted EPS of $1.00, both exceeding analyst consensus estimates. The significant sell-off was primarily attributed to investor concerns over a notable deceleration in growth within its critical AI data center segment, with revenue growth slowing to 24% in Q4 from 58% in Q1, leading Bank of America to downgrade the stock to Neutral. While the company provided Q1 FY2026 guidance largely in line with analyst expectations, the market reaction underscores sensitivity to growth trajectory in key strategic areas.

Analysis

Despite Coherent (COHR) reporting record fiscal Q4 2025 revenue of $1.53 billion, a 16% year-over-year increase, and an adjusted EPS of $1.00 that both surpassed consensus estimates, the stock plummeted nearly 20%. The severe market reaction was not driven by the headline numbers but by a critical underlying trend: a significant deceleration in its data center business. According to analysis from Bank of America, revenue growth in this key segment slowed to 24% in Q4, a sharp decline from the 58%, 46%, and 39% growth rates observed in the three preceding quarters. This trend, interpreted as a potential peak in a crucial AI-related growth driver, prompted a downgrade of the stock to neutral from buy by the bank, amplifying investor concerns. While Coherent's Q1 guidance for revenue ($1.46B-$1.6B) and adjusted EPS ($0.93-$1.13) is largely in line with analyst expectations and shows strong year-over-year growth, it was insufficient to allay fears about the forward-looking growth trajectory, indicating the market is prioritizing the rate of change in high-multiple segments over current profitability.

Key Decisions for Investors

• Investors should shift focus from the headline earnings beat to the underlying growth rate of the data center segment, as its trajectory is the primary determinant of current valuation and sentiment.
• Following the significant price correction and analyst downgrade, re-evaluate the stock's valuation to determine if it now adequately reflects a more moderate growth profile rather than the high-growth AI narrative previously priced in.
• Monitor upcoming quarterly results closely to see if management can meet or exceed the upper end of its provided guidance, as this will be critical for restoring confidence; any weakness relative to their forecast will likely exacerbate negative sentiment.
• Given the market's acute sensitivity to growth deceleration, investors with a thesis based on accelerating AI demand should consider the recent data a significant red flag and may want to hedge their position against further volatility.