Coherent's Recent Earnings: Strong Growth Tempered by Valuation Concerns

Coherent Corp. recently released its second-quarter fiscal 2026 results, demonstrating robust operational performance that has captured investor attention amid broader semiconductor sector momentum. The chipmaker reported earnings per share of $1.22, representing substantial growth from the prior-year quarter and exceeding the Zacks Consensus Estimate. Revenue reached $1.6 billion, reflecting consistent year-over-year expansion that underscores the company’s positioning within the AI infrastructure space.

The financial metrics reveal analyst optimism about Coherent’s trajectory. Over the preceding 60 days, multiple earnings revisions trended upward, with the consensus estimate climbing 1.7% to $1.22 per share. This upward bias among analysts suggests confidence in the company’s ability to execute its growth strategy. Over the trailing four quarters, Coherent has consistently surprised investors on the earnings front, delivering an average upside of 0.7%.

AI-Driven Demand Propels Coherent’s Revenue Expansion

The fundamental driver behind Coherent’s growth lies in accelerating demand for AI datacenter infrastructure. The company has ramped up production of 6-inch Indium Phosphide (InP) chips in its Jarfalla, Sweden facility to meet surging requirements from major cloud providers. Industry analysts project the global AI datacenter market will expand at a compound annual growth rate of 27.5% through 2035, positioning Coherent to capture meaningful share of this expansion.

Demand for Coherent’s 1.6T transceiver technology has intensified, with the company experiencing direct bookings that extend visibility into its near-term revenue pipeline. Beyond transceivers, the Optical Circuit Switch (OCS) market represents an estimated $2 billion long-term opportunity that management is aggressively pursuing. These product categories collectively contributed to a 51% year-over-year revenue surge in the data center and communications segment during fiscal 2025, with the data center business specifically rallying 23% in the most recent quarter.

Valuation Metrics Signal Caution for New Investors

Despite impressive operational performance, Coherent’s stock valuation has expanded significantly alongside the broader equity market rally. Trading at a trailing 12-month price-to-earnings ratio of 36.11X, the stock commands a notable premium relative to its semiconductor industry peer group average of 23.55X. This elevated multiple reflects both the market’s confidence in Coherent’s growth narrative and investor enthusiasm for AI-adjacent equities.

Over the past 12 months, Coherent shares have surged 142.5%, substantially outpacing the 19.6% rise in the broader S&P 500 index and the 7% gain of the semiconductor industry sector. The six-month performance has been equally pronounced, with the stock climbing 98.8% compared to 13.1% for the overall market. While this outperformance demonstrates investor conviction, it also raises questions about whether near-term growth expectations are already reflected in current pricing.

Compared to peer companies, Coherent’s valuation reflects market confidence. Figure Technology Solutions trades at 57.25X forward earnings, making Coherent relatively attractive on that basis. However, Skillsoft’s modest 2.17X multiple illustrates the wide dispersion in semiconductor valuation multiples. On a liquidity-adjusted basis, Coherent maintains a current ratio of 2.33 versus the industry average of 1.58, and holds $875 million in cash against just $48 million in debt, providing substantial financial flexibility.

Competitive Pressures and Market Dynamics Warrant Monitoring

Coherent faces meaningful competitive intensity in critical market segments. Wolfspeed and ON Semiconductor represent formidable competitors in the Silicon Carbide (SiC) sector, where Coherent maintains a substantial presence. Despite this market position, the company experienced a 6% year-over-year decline in end-market demand within its materials segment during fiscal 2025. This softening underscores the intensifying competition and the necessity for ongoing technology investments to maintain competitive positioning.

The company’s operating margin expanded by 1,081 basis points year-over-year in the first quarter of fiscal 2026, demonstrating operational leverage and manufacturing efficiency gains. However, sustaining this margin trajectory while making necessary competitive investments remains a critical management challenge. The rapid evolution of AI applications and datacenter requirements demands continuous R&D spending, which could pressure profitability if revenue growth moderates.

Coherent’s Investment Profile: A Measured Approach

Investors confronting Coherent face a classic tension between secular growth tailwinds and near-term valuation risk. The company’s position within AI infrastructure and its demonstrated ability to capture market share in high-growth segments represent compelling long-term attributes. Its financial fortress—characterized by strong cash balances and minimal debt—provides cushion against market disruptions.

However, current market pricing appears to embed optimistic assumptions regarding Coherent’s ability to maintain elevated growth rates and defend market position against well-capitalized competitors. The 36.11X P/E multiple leaves limited room for disappointment, particularly if revenue growth decelerates or competitive pressures intensify.

A prudent approach suggests waiting for additional evidence of Coherent’s ability to execute at current growth rates before pursuing a position. Monitoring the company’s competitive positioning in SiC markets, capital deployment decisions, and quarterly margin trends will provide clearer insight into whether current valuation levels are justified. For existing investors, maintaining positions remains defensible given long-term secular trends favoring Coherent’s product portfolio. For prospective investors, a more attractive entry point likely emerges following a meaningful pullback in share price, allowing for a more balanced risk-reward setup.