Is Coherent Well-Positioned to Sail Through the EV Wave?

Coherent Corp. (COHR) is strategically pivoting towards the EV market, bolstered by a $1 billion investment from DENSO and Mitsubishi Electric for SiC power electronics and a $400 million divestiture to fund AI and EV R&D. Despite a 6% year-over-year revenue decline in its Materials segment in 2025 due to softer automotive and SiC demand, and facing intense competition from peers like Cognex and Applied Materials, COHR's focus on next-gen battery technology and its current valuation of 18.2x forward P/E (below industry average) suggest a long-term growth strategy. Analysts have also raised FY26/27 earnings estimates, supporting a positive outlook for its EV sector positioning.

Analysis

Coherent Corp. (COHR) is executing a strategic pivot to capitalize on long-term growth in the Electric Vehicle (EV) and Artificial Intelligence (AI) markets. This realignment is supported by significant capital events, including a $1 billion investment from DENSO and Mitsubishi Electric to scale Silicon Carbide (SiC) manufacturing and the divestiture of its aerospace and defense unit for $400 million, which will be used to reduce debt and fund R&D. Despite this positive strategic direction, the company faces near-term headwinds, evidenced by a 6% year-over-year revenue decline in its Materials segment due to softer demand in automotive and SiC end markets. From a valuation perspective, COHR trades at a forward P/E of 18.2x, a discount to its industry's average of 26.52x. While its stock gain of 18.8% over the past year trails the broader industry's 75.4% rally, it has outperformed key competitors Cognex and Applied Materials. Analyst confidence in the long-term outlook is growing, reflected in the upward revision of fiscal 2026 and 2027 earnings estimates by 4.1% and 11.2% respectively, signaling that the current strategy is expected to yield future results.

Key Decisions for Investors

• Investors with a long-term horizon could view Coherent's strategic focus on the EV and AI sectors, backed by significant capital, as a compelling growth narrative, potentially using the current market softness as an attractive entry point.
• It is crucial to monitor for a turnaround in the Materials segment's revenue, as a recovery from the recent 6% decline would serve as a key validation of stabilizing demand in the core automotive and SiC markets.
• Given its forward P/E of 18.2x, which is below the industry average, Coherent presents a relative value opportunity for exposure to the SiC and power electronics theme, especially when compared to higher-multiple peers in the space.
• Monitor the company’s R&D progress in next-generation technologies like Lithium-Sulfur batteries and its SHARP recycling technology, as successful commercialization represents a significant upside catalyst not yet priced into the stock.