Finn Stockinger
Equity Analyst & Investor, Technology Research
Coherent is becoming the gatekeeper of AI photonics as networking hardware grows as critical and scarce as GPUs. It is the only player to move to 6-inch InP wafers, more than doubling chips per wafer and giving it a cost edge over rivals that buy laser chips, with EML and CW laser capacity set to double in 2026 and again in 2027. Its liquid-cooled XPO optics cut TCO by 20-30%, and its briefing raised its 2030 addressable market to $70B+, including $15B+ for CPO/NPO. x.comÂ
Coherent's booked InP laser capacity gives it a potential path into Nvidia's CPO expansion. Nvidia wants optical-engine capacity up 15x by mid-2027 and holds laser purchase commitments and capacity rights from its $2B Coherent investment. Coherent says fiscal 2027 is essentially booked and customers are reserving into 2028, but most near-term orders are for pluggables and other products; scale-up CPO revenue starts only in H2 2027. Neither company has sized Nvidia's rights. x.comÂ
Coherent now has credible exposure to almost every optical architecture hyperscalers are exploring, and its Nvidia deal materially de-risks that roadmap. Nvidia's nonexclusive pact adds a multibillion-dollar purchase commitment, a $2B equity investment and access to five CPO product families. First CPO/NPO revenue targeted for H2 2026 matches Nvidia's timing. Data center and communications are already 72% of revenue. Qualification, standards, concentration and margins remain unsettled. x.comÂ
Applied Optoelectronics has a better chance than Coherent of delivering a 300-400 mW laser with tolerable RIN and linewidth. Its transceiver capacity ramp is also larger and is not gated by Sumitomo's 6-inch InP wafers. Long AAOI against short COHR is an unnecessarily dangerous pair trade idea. x.comÂ
Coherent's 6-inch substrate access, yields and margin concerns look mostly like timing issues in the optical buildout. Coherent is now one of the preferred ways to gain exposure and should participate meaningfully, despite those constraints. x.comÂ
Indium phosphide laser capacity, not demand, now caps how fast 1.6T optics ship, and Coherent owns its laser fabs and grows its own substrate. That makes the InP squeeze Goldman flags through 2027 work in its favor. Record Q4 revenue of $2.05 billion rose 34% as six-inch InP wafers ramped, with 40.2% non-GAAP gross margin and 42%+ guided, at a 0.92 PEG. The risk: with about $3.55 billion of debt and cash burn, it can't absorb a 1.6T ramp slip; six-inch yield at volume is the test. x.comÂ
VCSEL scale-up optics may spread revenue across more suppliers because they lack the fundamental bottlenecks of InP lasers. Coherent looks well positioned, but the VCSEL opportunity may still be shared more widely; Lumentum is also betting on VCSELs for scale-up. x.comÂ
Coherent is set up for a strong 2026 as better manufacturing yields and a new product ramp arrive alongside solid guidance. The company says 6-inch production yields more than 3-inch, and its CPO/NPO ramp starts this year. Good Q4 guidance implies a P/E below 50 for 2027. The broader optics and photonics group, including Lumentum and Applied Optoelectronics, looks super bullish. x.comÂ
Coherent's pivot to AI optics is paying off as copper gives way to optical links inside large AI clusters. Quarterly revenue topped $2 billion for the first time, up 42%, with datacenter and communications up 59% to 79% of sales. Multi-year contracts with AI leaders including Nvidia extend order visibility into 2028. It launched its PhotonLink interconnect platform at ECOC 2026, and its indium phosphide, VCSEL and 6-inch wafer strengths give it a moat in 800G and 1.6T transceivers. x.comÂ
Lumentum and Coherent face a threat from microLED optics, which could replace laser optics with 20x less power and no temperature sensitivity by late 2027. The use case is short-reach, high-volume links under 30 meters. The copper versus optics debate is a distraction, since every AI cluster needs both and Credo now does both while Applied Optoelectronics handles long-haul; the bigger question is what microLED does to laser makers. x.com x.comÂ
Coherent has the most substance in the optical group and the only real base on its chart, while the sector's sell-off is macro, not fundamental. At about 23x 2027 estimates it looks mispriced, and it is the only company holding 6-inch InP, silicon photonics, OCS and CPO engines at once. It alone has stopped making lows. Rate-hike pricing and a 5.04% 10-year are still compressing optical multiples, so staged, defined-risk entries beat full commitments; a daily close below 264 invalidates it. … Show more
