Coherent ($COHR) DD – One of the Most Overlooked AI Infrastructure Plays?
Coherent ($COHR) DD – One of the Most Overlooked AI Infrastructure Plays?
Everyone is obsessed with:
\- NVIDIA
\- AMD
\- TSMC
But almost nobody is paying attention to the companies enabling AI clusters to actually communicate at scale.
That’s where Coherent comes in.
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\# What does Coherent actually do?
Coherent Corp. operates in:
\- Optical networking
\- Photonics
\- Lasers
\- Optical transceivers
\- Datacenter interconnects
\- Indium Phosphide (InP)
\- Silicon Carbide
\- Semiconductor materials & components
In simple terms:
they help build the “data highways” for AI infrastructure.
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\# Why this matters
AI scaling is creating a new bottleneck:
not compute alone, but data movement.
As AI clusters become larger and more power-hungry, traditional copper interconnects start hitting physical limitations:
\- bandwidth
\- latency
\- power consumption
\- heat
That’s why the industry is rapidly moving toward:
\- optical interconnects
\- silicon photonics
\- optical switching
\- high-speed transceivers
Even Jensen Huang has repeatedly emphasized the long-term importance of photonics and optical networking for next-generation AI systems.
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\# The Bull Case
\## 1. AI Datacenter demand is exploding
Coherent reported FY2025 revenue of:
\- $5.81B
\- up 23% YoY
The biggest driver:
AI datacenter demand.
Their networking segment saw:
\- segment profit growth of 82% YoY
This isn’t some hypothetical AI story anymore.
The demand is already showing up in the numbers.
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\## 2. Margins are improving significantly
A lot of people still think of COHR as an old-school cyclical industrial company with mediocre profitability.
But margins are improving fast.
FY2025:
\- GAAP Gross Margin: 35.2%
\- Non-GAAP Gross Margin: 37.9%
Recent quarterly results pushed gross margins close to:
\- \~39.6%
Management has even guided toward:
\- \~41% margin territory
That matters because AI networking products generally carry much better margins than legacy industrial businesses.
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\# 3. Massive production expansion
This is one of the most interesting parts of the story.
Coherent is aggressively expanding its Indium Phosphide (InP) manufacturing capacity, which is critical for modern optical transceivers.
According to investor materials:
\- they launched their first 6-inch InP production line
\- higher yields than previous generations
\- production capacity expected to double in both 2026 and 2027
That doesn’t sound like management expecting demand to slow down.
It sounds like they’re preparing for a massive ramp.
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\# 4. NVIDIA partnership / investment angle
One thing that caught my attention:
Reports indicated NVIDIA plans to invest billions into photonics and optical networking suppliers, including Coherent, alongside long-term supply agreements.
If NVIDIA is directly helping fund your production capacity, you’re probably not just another commodity supplier.
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\# 5. Optical networking could become one of the biggest AI infrastructure markets
TrendForce estimates:
\- AI optical transceiver market could reach \~$26B by 2026
Other market estimates project:
\- total optical transceiver market reaching \~$36B+ by 2033
And honestly, those estimates could still end up conservative if AI compute demand continues growing exponentially.
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\# Risks
Obviously there are risks:
\- highly volatile stock
\- cyclical industry exposure
\- strong competition (Lumentum, Broadcom, Marvell, etc.)
\- dependent on AI/datacenter capex cycles
\- expectations are rising fast
This stock can move HARD after earnings.
Not a safe low-volatility play.
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\# My take
I think the market still misunderstands Coherent.
Most people see:
“laser company.”
But increasingly, I think they’re becoming:
an AI infrastructure enabler.
If AI truly becomes the next industrial revolution, the world will need:
\- GPUs
\- power
\- cooling
\- and ultra-fast optical networking
Coherent appears positioned right in the middle of that trend.
Not financial advice.
Just a stock I think deserves way more attention.