COHR vs. ARM: Which Tech Growth Stock Offers More Upside Now?

Coherent (COHR) is presented as a stronger investment than Arm Holdings (ARM), driven by its impressive fiscal 2025 sales growth of 51%, with data center revenues surging 61%, and strategic positioning in AI-driven infrastructure through advanced optical components. While ARM dominates mobile chip architecture and is expanding into AI/IoT, it faces mounting risks from increasing RISC-V adoption in China, its second-largest market, and potential channel conflicts if it moves into CPU production. COHR's projected fiscal 2026 EPS growth of 29% and attractive valuation contrast with ARM's 3% projected EPS growth and higher valuation, underlining COHR's more favorable outlook.

Analysis

Coherent Corp. (COHR) is demonstrating strong operational execution and strategic alignment with the AI infrastructure build-out. The company reported a 51% year-over-year increase in fiscal 2025 sales, driven by a 61% surge in its data center business. This momentum is supported by tangible product milestones, including initial shipments of 1.6T transceivers and development of 3.2T models, positioning it to capture demand from hyperscalers. Furthermore, Coherent's threefold expansion of its 6-inch indium phosphide production capacity is set to enhance cost efficiencies and scale. In contrast, while Arm Holdings (ARM) maintains a dominant position in power-efficient mobile chip architecture, it faces significant and growing headwinds. Its reliance on China, its second-largest market, is a material risk as growth slows and the open-source RISC-V architecture gains traction, a trend expected to be formally supported by the Chinese government. Strategically, a potential move into CPU production could create channel conflict with key customers and compress its high-margin licensing model. This divergence is reflected in their financial outlooks: Coherent's fiscal 2026 EPS is projected to grow 29% with upward estimate revisions, whereas Arm's current-year EPS is forecasted to grow just 3% with downward revisions. Valuation further separates the two, with COHR trading at a relatively attractive 22.26X forward P/E, below its median, while ARM commands a premium 72.07X forward P/E.

Key Decisions for Investors

• Given Coherent's robust sales growth, strong execution in AI-related data center components, and a favorable valuation with a 22.26X forward P/E, investors may consider it a compelling opportunity to gain exposure to the AI infrastructure theme.
• Investors in Arm Holdings should exercise caution, as its premium 72.07X valuation appears misaligned with its minimal 3% projected EPS growth, downward estimate revisions, and significant long-term risks from RISC-V adoption in China and potential strategic missteps.
• A key factor to monitor for Coherent is the revenue contribution from its new 1.6T and 3.2T transceivers, while for Arm, any acceleration of market share loss in China or concrete moves into hardware production would be critical negative catalysts.