COHR vs. ARM: Which Tech Growth Stock Offers More Upside Now?

Both Coherent Corp. COHR and Arm Holdings plc ARM are technology companies whose business models focus heavily on advanced hardware and innovation at the core of modern computing.

ARM is best known for its semiconductor IP, providing chip architectures that power a vast share of smartphones, servers and increasingly AI-focused processors. COHR, on the other hand, operates in the realm of photonics, lasers, and optical components, enabling the ultra-fast connectivity and precision manufacturing that form the backbone of today’s data and electronics industries.

The two companies compete for investor interest in high-growth, innovation-driven segments of the tech infrastructure ecosystem.

COHR’s Case: Transceivers, Indium Phosphide and SiC Challenges

Coherent has been on an impressive growth trajectory, registering a stellar 51% rally in its top line in fiscal 2025, fueled primarily by its thriving data center business, which alone surged 61% during the year. This strong performance highlights the company’s ability to capture opportunities in high-demand technology verticals. Looking ahead, sustaining this momentum will likely require continuous innovation and an aggressive ramp-up of new product introductions. A glimpse of this strategy was evident in the fourth quarter of fiscal 2024, when Coherent recorded its initial revenue shipments of advanced 1.6T transceivers. These early shipments are not just symbolic milestones; they are expected to drive exponential contributions beginning in fiscal 2026 as hyperscale data centers rapidly scale to support AI-driven workloads.

The company has already demonstrated that it is not content with incremental progress. It has raised the bar significantly by advancing to the development of next-generation 3.2T transceivers, while simultaneously investing in cutting-edge co-packaged optics technologies. This rapid expansion is being fueled by skyrocketing demand for ultra-high bandwidth and low-latency data transfers, which are indispensable for hyperscale data centers formed in response to the AI boom. By strategically positioning itself in this market, Coherent is aligning with one of the most transformative trends in the tech ecosystem.

To capture growing demand, Coherent has expanded its indium phosphide production capacity threefold year over year. It has implemented the world’s first 6-inch indium phosphide production line, a landmark achievement in the semiconductor optics industry. This advancement is not just about capacity; it is expected to unlock significant cost efficiencies while providing a critical volume boost, thereby reinforcing the company’s ability to deliver competitively priced, high-performance products at scale.

Importantly, Coherent’s growth ambitions are not confined solely to the transceiver segment. The company has also ventured into the promising optical circuit switch (OCS) market, marking the beginning of initial revenue streams from this business in the fourth quarter of fiscal 2025. As enterprises and data centers demand ever-greater bandwidth and faster data transmission capabilities, OCS adoption is expected to accelerate, creating a growth lever for the company.

Coherent faces considerable competition in the Silicon Carbide (SiC) arena. The market has become one of the most contested battlegrounds in the semiconductor industry, and Coherent finds itself up against formidable rivals. Companies like Wolfspeed and ON Semiconductor are aggressively carving out dominance, leveraging their scale, innovation and established market presence to capture the lion’s share of growth opportunities. These players are not merely competing; they are reshaping the competitive landscape by pushing technological boundaries and solidifying their foothold in critical, high-growth applications.

Wolfspeed has taken a leadership role in advancing wafer technology, ensuring it sets the pace of transition for the entire industry. Meanwhile, ON Semiconductor has become a force to be reckoned with by driving the adoption of its high-performance MOSFET solutions, which are increasingly integral to powering next-generation electric vehicles and other energy-intensive systems. Together, these competitors have created a landscape where the bar for innovation and execution continues to rise, leaving little room for complacency.

ARM’s Case: Chip Dominance, AI Opportunities and RISC-V Threats

ARM’s strength lies in its power-efficient chip architectures, which remain essential to its leadership in mobile computing. Its designs power energy-saving devices from Apple AAPL, Qualcomm QCOM and Samsung, establishing ARM as the backbone of modern mobile technology. As demand for high performance with low power consumption rises, ARM’s chips continue to dominate smartphones and tablets. Apple builds its M-series chips around the company’s architecture, Qualcomm relies on it for Snapdragon processors, and Samsung integrates ARM designs across mobile and consumer electronics. ARM’s ability to combine efficiency and performance remains a core competitive advantage.

ARM is fast becoming a key player in the AI and IoT space. As industry leaders like Apple, Qualcomm, and Samsung focus on AI-driven innovation, they increasingly depend on ARM’s flexible, energy-efficient architecture. From wearables to cloud data centers, ARM’s chips are designed to handle the rising need for embedded AI models. Apple is expanding AI features on ARM-based silicon, Qualcomm is enhancing AI capabilities in mobile and automotive applications, and Samsung is exploring advanced IoT solutions through ARM-powered Exynos chips. With machine learning and edge computing shaping the future, ARM’s architecture is emerging as vital infrastructure for technological progress.

ARM faces significant risks from its large presence in China, its second-largest market. Growth in the region has slowed, driven in part by the growing adoption of RISC-V, an open-source chip architecture increasingly embraced by Chinese companies. The Chinese government is expected to release formal guidelines promoting RISC-V development, potentially accelerating this shift. As China seeks to reduce its reliance on foreign chip technologies, ARM’s dependence on this market becomes a long-term challenge. Continued RISC-V adoption could limit ARM’s growth in China, weakening its overall global momentum. This evolving competitive threat is a crucial factor for investors to closely monitor.

ARM’s potential move into producing its own CPUs presents both an opportunity and a risk. On one hand, entering the hardware space could significantly expand its total addressable market and drive revenue growth. However, this strategy could also backfire by turning Arm Holdings into a direct competitor to its top customers, potentially straining key relationships.

The risk is heightened by reports that the company is hiring talent away from these same clients, which may further fuel tensions. While the hardware push offers upside, it could alienate partners and jeopardize existing licensing revenues from major chipmakers. At the same time, ARM’s move to develop its CPUs could significantly compress its gross margins, as the company would begin absorbing the direct costs associated with chip manufacturing.

How Do Zacks Estimates Compare for COHR & ARM?

The Zacks Consensus Estimate for COHR’s fiscal 2026 sales and EPS indicates year-over-year growth of 9% and 29%, respectively. EPS estimates have been trending upward over the past 60 days.

The Zacks Consensus Estimate for ARM’s current year sales suggests 18% year-over-year growth, while EPS is expected to grow 3%. EPS estimates have been trending downward over the past 60 days.

SoFi’s Valuation Reflects Strong Growth Potential

While COHR appears attractively valued with a forward 12-month P/E of 22.26X versus its median of 26.29X, ARM's higher forward P/E of 72.07X, below its median of 124.5X, reflects investor confidence in its strong earnings growth potential.

COHR Stands Out

Between Coherent and Arm, Coherent emerges as the stronger investment case. While both companies operate in high-growth, innovation-driven markets, Coherent’s recent execution across data center optics, transceivers and optical circuit switches highlights its ability to deliver tangible progress and capitalize on the AI-driven infrastructure boom. The company is also broadening its reach into areas like Silicon Carbide, reinforcing long-term positioning despite competitive pressures. In contrast, ARM faces mounting risks tied to its dependence on China, rising RISC-V adoption, and potential channel conflicts if it moves into hardware. Considering stability and growth prospects, Coherent stands out as the winner.

While COHR carries a Zacks Rank #3 (Hold), ARM carries a Zacks Rank #4 (Sell) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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