COHR Q1 Earnings Call: AI Data Center Growth and Portfolio Optimization Take Center Stage

Materials and photonics company Coherent (NYSE:COHR) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 23.9% year on year to $1.5 billion. Guidance for next quarter’s revenue was better than expected at $1.5 billion at the midpoint, 2% above analysts’ estimates. Its non-GAAP profit of $0.91 per share was 6.2% above analysts’ consensus estimates.

Is now the time to buy COHR? Find out in our full research report (it’s free).

StockStory’s Take

Coherent’s first quarter results were shaped by ongoing expansion in AI data center demand and the ramp of new optical networking products. CEO Jim Anderson credited the 24% year-over-year revenue increase to record shipments in the data center segment and continued growth in telecom. Management highlighted the introduction of several new transceiver designs at the Optical Fiber Communications Conference and the company’s broad photonics portfolio as key differentiators. Anderson noted, “Our customers value both the breadth and depth of our technology portfolio as well as our supply chain flexibility and resiliency.” Improvements in gross margin were attributed to a mix of higher volumes, cost reductions, and pricing optimization, with CFO Sherri Luther pointing to company-wide efforts in manufacturing efficiency and product cost management.

Looking to the upcoming quarter, Coherent’s guidance reflects management’s confidence in further AI-driven data center momentum and the ramp of next-generation optical products. Anderson emphasized that 1.6T transceiver revenue is expected to begin this year, with a broader customer adoption cycle to follow. He also addressed macroeconomic caution in the industrial segment, citing a “more cautious near-term view” due to external uncertainty. Luther described ongoing efforts to optimize the company’s portfolio, reduce operating expenses, and focus R&D on high-return projects, stating, “It’s important that we make investments for the long-term growth of the company while driving operating leverage and efficiency.”

Key Insights from Management’s Remarks

Management attributed first quarter performance to robust AI data center demand, product innovation in optical networking, and disciplined cost controls, while also highlighting progress in portfolio optimization.

• AI data center demand: Revenue growth was propelled by ongoing strength in the AI data center segment, with record shipments of high-speed optical transceivers and increased customer adoption of new data rates. Management noted a sequential 11% increase in data center revenue, driven by demand from hyperscale cloud providers.
• Next-generation product launches: The company introduced three different 1.6T transceiver designs at the Optical Fiber Communications Conference, leveraging multiple laser technologies (EML, VCSEL, silicon photonics). These launches are expected to drive future growth as customers transition to higher data rates.
• Telecom segment ramp: The telecom business saw its third consecutive quarter of sequential growth, led by data center interconnect (DCI) and new coherent transceiver products (100G, 400G, and 800G ZR/ZR+). Management expects DCI to remain a key growth area.
• Portfolio optimization actions: Coherent shut down non-core silicon carbide device development and discontinued several unprofitable product lines. Resources have been reallocated to core substrate and EPI production, expected to improve profitability over time.
• Supply chain resiliency: Management stressed the company’s global manufacturing footprint, with over 60 production sites across 14 countries, and significant U.S. presence. This geographic diversity and vertical integration are intended to mitigate risks from tariffs and supply disruptions.

Drivers of Future Performance

Coherent expects AI-related optical networking demand and ongoing product innovation to drive near-term growth, while portfolio optimization and cost control remain a focus amidst industrial market uncertainty.

• AI data center transition: Management believes continued AI-driven investment by cloud providers will sustain demand for high-speed transceivers, with 1.6T products expected to ramp this year and 800G remaining strong through the next year. Ongoing engineering milestones and customer qualifications are cited as indicators of future revenue growth.
• Gross margin improvement efforts: The company is executing a strategy focused on product cost reductions, yield improvements, and selective pricing optimization, especially in industrial segments. Luther stated that while unfavorable product mix could be a headwind, ongoing manufacturing and cost initiatives are expected to support the goal of exceeding 40% gross margins longer term.
• Macroeconomic and industrial market caution: Management expressed a cautious outlook for industrial and consumer electronics end markets, referencing uncertainty from tariffs and broader macroeconomic conditions. Coherent’s guidance reflects this conservatism, with growth primarily expected from data center and telecom demand.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will closely monitor (1) the commercial ramp and customer adoption of 1.6T optical transceivers, (2) sustained momentum in AI data center and DCI demand, and (3) the impact of portfolio optimization actions on gross margins and operating leverage. Execution on new product launches and manufacturing cost initiatives will be key indicators of the company’s ability to achieve its profitability targets.

Coherent currently trades at a forward P/E ratio of 19.9×. In the wake of earnings, is it a buy or sell? The answer lies in our full research report (it’s free).

High Quality Stocks for All Market Conditions

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.