Coherent Beats Q4 Estimates on AI Data Center Boom, But Investors Remain Wary
Materials and photonics specialist Coherent Corp. (NYSE: COHR) delivered a fourth-quarter performance that surpassed Wall Street's forecasts, yet failed to fully convince a skeptical market. The company reported revenue of $1.69 billion, a 17.5% year-over-year increase and ahead of consensus. Perhaps more telling was its outlook: guidance for the current quarter, pegged at a midpoint of $1.77 billion, came in 3.4% above analyst expectations. Non-GAAP earnings per share of $1.29 also topped estimates by 7%.
CEO Dr. James Anderson described the business environment as having "the best visibility we've ever seen," with customer commitments for key components extending into 2027. This unprecedented demand, primarily from hyperscale data centers building out AI infrastructure, drove the upside. CFO Sherri Luther pointed to operational improvements and pricing discipline as additional tailwinds for margins.
However, the stock reaction was notably muted, with shares trading down to $205.44 from $211 pre-earnings. This disconnect highlights a central tension: while Coherent is a clear beneficiary of the AI hardware build-out, investors are scrutinizing the industry's rapid capacity expansion. The company is aggressively ramping production of six-inch indium phosphide wafers—a critical material for high-speed optics—and launching new integrated photonics solutions. The risk, as some analysts see it, is that the current breakneck investment cycle could lead to an oversupply situation in the coming years, pressuring pricing power.
"The execution is flawless for the moment, but the market is pricing in the cyclicality inherent to semiconductors and materials," said Michael Torres, a portfolio manager at Horizon Capital. "Coherent is riding the AI wave, but we need to see if this demand plateau is sustainable or if we're just pulling business forward."
A more pointed view came from Dr. Lena Vance, a veteran tech industry analyst. "This is classic 'peak cycle' signaling," she remarked. "Every CEO has 'the best visibility ever' at the top. They're flooding the zone with capacity just in time for the inevitable digestion phase. The guidance beat is a sugar high, not a sustainable diet."
In contrast, Raj Patel, an engineer-turned-venture investor, focused on the technology moat. "The narrative is wrong. This isn't just about selling more widgets; it's about Coherent's design wins in co-packaged optics and next-gen transceivers. They're embedding themselves into the blueprint of AI infrastructure. That backlog through 2027 isn't hype—it's a fundamental shift in how data centers are built."
Looking ahead, Coherent's trajectory hinges on its ability to convert this demand surge into durable profitability. Key monitors for investors will be the margin profile of the new indium phosphide production lines, the adoption rate of its advanced optical subsystems (OCS), and whether order momentum can outpace the industry's collective capacity additions.