Coherent, Inc. (COHR) | The Buildout — AI Infrastructure

The Verdict

Coherent is a vertically integrated photonics manufacturer. It makes lasers, transceivers and optical components that sit in the optical connectivity layer of AI data centers, carrying signals between racks, clusters and data centers. Its products include Indium Phosphide lasers, 800G and 1.6T transceivers, optical circuit switching systems and emerging co-packaged optics. It also sells into industrial markets such as semiconductor capital equipment, display manufacturing and materials processing.

Earnings Beat

Coherent reported record Q4 FY26 revenue of $2.05B, up 34% year over year reported and 42% pro forma. Non-GAAP gross margin was 40.2%, up 66 bps sequentially and 215 bps year over year. Management reported record bookings and said fiscal 2027 is essentially fully booked, with backlog through end calendar 2027.

Management tone: Management's tone was more expansive than on the prior call. They raised FY27 growth language from 'exceed FY26' to 'accelerate significantly,' pulled InP capacity timing forward, rebutted CPO delay concerns, and said backlog now extends through end calendar 2027. They remained consistent in declining to quantify incremental gross margin fall-through.

Management Guidance

For Q1 FY27, management guided revenue of $2.2B–$2.4B, with the non-GAAP gross margin guide at a 40.5% midpoint and non-GAAP opex at the guide midpoint below the company's 18%-of-revenue target model. For FY27, management said growth would accelerate significantly. The Q1 FY27 tax-rate line in the transcript is garbled; the prior format was 18%–20% non-GAAP.

Trajectory

The numbers show a business accelerating at the revenue line. Revenue rose from $1.58B in Q1 FY26 to $2.05B in Q4 FY26, and GAAP gross margin rose from 36.6% to 38.5%. EBITDA grew from $294.7M to $393.4M over the same quarters. The offset is cash: free cash flow was negative in each of the last four quarters and -$1.03B on a TTM basis, as capex rose to $556M in Q4 and was guided up again in Q1 FY27.

The Model

The model projects FY+1 revenue of $10,800M and EBITDA of $2,635M, a 24.4% margin. For FY+2, it projects revenue of $14,800M and EBITDA of $3,878M, a 26.2% margin. The near-term anchor is the InP capacity ramp and the revenue vectors management has dated: CPO and PhotonLink from the December quarter, multi-rail in 1H CY2027, and scale-up CPO and thermal in 2H CY2027. FY+2 depends on those ramps converting into volume across 800G, 1.6T, OCS, CPO and newer lines.

Projections are the median of 5 independent model runs. The model’s revenue sits 9.1% above analyst consensus.

For Q1 FY27, management guided revenue of $2.2B–$2.4B, with the non-GAAP gross margin guide at a 40.5% midpoint and non-GAAP opex at the guide midpoint below the company's 18%-of-revenue target model. For FY27, management said growth would accelerate significantly. The Q1 FY27 tax-rate line in the transcript is garbled; the prior format was 18%–20% non-GAAP.

What Could Go Right — and Wrong

Looking Ahead

Over the next 12 months, the key events are the September quarter InP output doubling, the PhotonLink launch at ECOC on September 21, 2026, and CPO revenue beginning in the December quarter. Management also targets multi-rail initial revenue in 1H CY2027 and Zurich 6-inch production also in 1H CY2027.

Financials

Annual Summary

Key Ratios (Trailing)

The Company

Coherent is a vertically integrated photonics manufacturer. It develops, manufactures and markets lasers, transceivers and other optical and optoelectronic devices, modules and systems, plus engineered materials, for communications, industrial, instrumentation and electronics markets. Its AI role is in optical connectivity: its Indium Phosphide lasers, 800G and 1.6T transceivers, optical circuit switching systems and emerging co-packaged optics sit between AI compute clusters and the networks that connect them.

It operates as a vertically integrated manufacturer, making its own compound-semiconductor devices rather than buying them. The FY2025 10-K lists a global footprint including China, Germany, Malaysia, Vietnam, Sherman Texas, the Philippines and other sites; management says it has over 20 production facilities in the US. Its current operating structure is Datacenter & Communications and Industrial, while the FY2025 10-K uses Networking, Materials and Lasers.

Business Segments

Competitive Landscape

Coherent describes itself as a global leader in photonic technology and, on the Q4 FY26 call, as the largest US supplier of transceivers. The evidence names competitors in peers' filings, including Applied Optoelectronics, IPG Photonics, nLIGHT, MKS, Materion, Viavi and Wolfspeed. Management was asked about a perceived gap versus a primary competitor in OCS/CPO and defended its differentiation rather than reconciling the gap with data; when asked about laser pricing and China competition, it pointed to LTA price visibility and did not directly address China competition.

Supply Chain

Coherent sits upstream of networking OEMs and downstream of substrate, epitaxy-tool and foundry suppliers. It fabricates its own compound-semiconductor devices, and NVIDIA is the one named customer relationship; most other counterparties are inferred.