Coherent

Coherent just posted 1.81 billion dollars in quarterly revenue, up 21% year over year, with the data center and communications business driving the surge. Operating income nearly tripled to 201 million dollars and earnings per share swung from a loss of 11 cents a year ago to a positive 97 cents. Management guided next quarter to as much as 2.05 billion dollars in revenue, signaling the AI optical buildout is accelerating, not slowing.

Gross margin expanded to 37.7%, up 243 basis points from a year ago, as the product mix shifts toward higher value AI optical components. Coherent is also moving to 6 inch indium phosphide wafers that quadruple chip output at less than half the cost, creating a structural cost advantage. Combined with a fresh 2 billion dollar partnership with Nvidia on next generation optics, profitability has real room to keep climbing.

The stock has roughly doubled over the past year, which means a lot of the good news is already baked in. Coherent trades at well over 40 times next year's expected earnings, so any stumble on execution or guidance could trigger a sharp pullback. Investors are paying for years of future growth to land exactly as planned.

A handful of cloud giants drive most of Coherent's data center revenue, which means a single change in their spending plans hits hard. Around 70% of revenue now comes from one segment tied to AI infrastructure, so the business is less diversified than it used to be. Competition from Lumentum and the threat of Nvidia building optics in house also keep pressure on pricing.