Coherent Shares Rise 4% as AI Data Centre Demand Lifts Quarterly Revenue Nearly 50%

Coherent Corp. (NYSE:COHR) shares gained approximately 4% in premarket trading on Thursday after the photonics company reported higher first-quarter revenue and earnings, supported by increased demand for optical connectivity products used in artificial intelligence data centres.

For the quarter ended September 30, Coherent reported adjusted earnings of $2.09 per share, an increase of 80% from $1.16 in the corresponding period last year. Revenue rose 49.9% to $2.37 billion, while adjusted net earnings increased 91% to $422 million.

The company’s datacenter and communications business accounted for most of the revenue growth, reflecting increased demand for optical networking infrastructure as AI computing capacity expands.

Datacenter and Communications Revenue Increases 79%

Coherent reported revenue of $1.95 billion from its datacenter and communications segment, representing a 79% increase compared with the previous year.

The growth reflected demand for optical connectivity technologies used to transmit data between computing systems in AI infrastructure.

By comparison, revenue from the company’s industrial segment declined 14.8% to $418.6 million.

Chief Executive Officer Jim Anderson highlighted the transition from copper-based connections to optical technology in AI data centres as an important factor supporting demand.

As AI computing systems require greater bandwidth and energy efficiency, optical connectivity is becoming an increasingly important component of data centre infrastructure.

Coherent said its established businesses continued to expand while newer growth areas began contributing to revenue.

Gross Margins Improve as Adjusted Operating Income Rises

Coherent reported improvements in both reported and adjusted profitability during the quarter.

Gross margin under generally accepted accounting principles (GAAP) increased 254 basis points from the previous year to 39.1%.

Adjusted gross margin rose 184 basis points to 40.6%.

Adjusted operating income increased 78.1% year over year to $550.3 million, reflecting higher revenue and improved operating profitability.

Adjusted net earnings reached $422 million, up 91% from the corresponding quarter last year.

The margin improvements accompanied increased sales of optical connectivity products, although the company continues to invest in production capacity to support anticipated demand.

Stifel analysts identified customer commitments and the potential financial benefits of replacing externally sourced laser components with internally produced technology as factors relevant to future profitability.

“In our view, customer commitments increasingly support capacity investment, while internal laser substitution remains an unharvested margin lever. The next question is how quickly those commitments convert into higher-margin revenue and cash,” the analysts wrote.

Their comments highlighted the importance of converting customer demand into additional revenue, margin improvements and cash generation.

Coherent Forecasts Second-Quarter Revenue of Up to $2.75 Billion

For the second quarter, Coherent projected revenue between $2.55 billion and $2.75 billion.

The company also forecast adjusted earnings of $2.28 to $2.48 per share.

Both ranges represent increases from the first-quarter results of $2.37 billion in revenue and $2.09 in adjusted earnings per share.

The outlook reflects management’s expectations for continued demand across the company’s principal growth markets, particularly products supporting AI data centre connectivity.

Coherent also expects fiscal 2027 pro forma revenue growth to exceed 60%.

The company attributed this outlook to anticipated demand for its technologies across expanding markets.

Company Targets $3 Billion Quarterly Revenue in Fiscal 2027

Coherent outlined additional revenue milestones as part of its longer-term financial expectations.

The company expects to record its first quarter with revenue of $3 billion by the end of fiscal 2027.

It also anticipates reaching quarterly revenue of $4 billion for the first time during fiscal 2028.

These targets reflect expectations for continued expansion in demand for optical networking and other products across its growth markets.

Coherent also increased its longer-term adjusted gross margin target.

The company now expects adjusted gross margin to exceed 45% before the end of calendar 2028, compared with the 40.6% reported in the latest quarter.

Achieving these targets will depend on revenue growth, production capacity, product mix and the company’s ability to manage manufacturing costs.

Analysts Assess AI Infrastructure Demand and Valuation

Analysts at B. Riley Securities acknowledged Coherent’s quarterly performance and the possibility of further increases in earnings estimates.

“COHR continues to execute well, and we expect estimates to keep moving higher,” the analysts wrote.

However, the firm also identified broader investor sentiment towards artificial intelligence infrastructure financing as a factor influencing semiconductor and related technology valuations.

“However, the group’s multiples are now driven more by sentiment on AI funding than by quarterly results, and we think further estimate increases are likely to be offset by multiple compression until funding concerns ease,” the analysts added.

B. Riley Securities maintained its Neutral rating on Coherent shares.

The comments reflected the distinction between the company’s operating performance and the market’s assessment of valuations across businesses exposed to AI infrastructure investment.

Stifel analysts also focused on the relationship between customer commitments, capacity investment and the timing of future margin improvements.

Coherent Outlook

Coherent’s first-quarter results showed a 49.9% increase in revenue and a 91% rise in adjusted net earnings, supported primarily by growth in its datacenter and communications business.

The company reported higher gross margins and adjusted operating income, while its industrial segment recorded lower revenue compared with the previous year.

Management expects second-quarter revenue of $2.55 billion to $2.75 billion and adjusted earnings of $2.28 to $2.48 per share.

Longer-term targets include quarterly revenue milestones of $3 billion in fiscal 2027 and $4 billion in fiscal 2028, alongside an adjusted gross margin exceeding 45% before the end of calendar 2028.

Investors will continue to monitor AI data centre demand, production capacity expansion, profitability and broader financing conditions affecting the sector.

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