Key metric context: TTM P/E of 116.6x is heavily distorted by prior fiscal year losses (FY25 full year net income was just $49M). The business has inflected: Q1+Q2 FY26 combined net income is $373M — an annualized run rate of ~$750M, implying a forward P/E of ~43.5x on FY26E earnings. Non-GAAP EPS of $1.29 in Q2 (vs $0.95 Y/Y) demonstrates accelerating earnings power. FCF is negative due to deliberate inventory builds and capex for the AI transceiver ramp — not operational weakness.
THESIS: HIGH CONVICTION ENTRY TIMING: WAIT FOR PULLBACK
Expected Value: (0.30 × 34%) + (0.40 × 12.5%) + (0.30 × -23%) = +8.3% over 180 days. R:R ratio: 1.6:1 at current price ($260 base upside vs $195 stop-loss downside). The asymmetry is moderate — not compelling enough for aggressive entry today, but strong enough to position on pullback.
Massive Trend Strength: Trading 73% above the 200-day SMA ($127.01) and 12% above the 50-day ($196.84). The stock has risen ~383% from its 52-week low of $45.58. This is a structural re-rating, not a bounce.
Book-to-Bill >4x in DC Segment: Per the Q2 earnings call, datacenter book-to-bill exceeded 4:1 with bookings visibility extending into 2028. This is unprecedented demand signal density.
Earnings Momentum: Four consecutive earnings beats. Q2 non-GAAP EPS of $1.29 beat consensus by 5.7%. Q3 guidance midpoint ~4% above street estimates on both revenue and earnings.
CEO Execution Track Record: Jim Anderson (ex-Lattice Semi CEO, where he 10x'd the stock) is executing the same "portfolio simplification + margin expansion" playbook. Munich tools division sold Jan 2026. More divestitures expected.
Trading Above Average Analyst PT: At $220, COHR is 5% above the consensus target of $209.29. Range ceiling is $235. This means sell-side hasn't caught up — either targets rise or the stock corrects. High-conviction but high-variance position.
Negative TTM Free Cash Flow: FCF of -$257M reflects massive capex ramp (InP wafer fab expansion, 6-inch wafer production at Sherman, TX and Järfälla, Sweden). Cash conversion must improve in H2 FY26 — monitor closely.
Beta 1.87: In a VIX 20 environment with narrowing breadth, high-beta names carry outsized drawdown risk on any macro shock. A 10% market pullback becomes a 19% COHR pullback.
S-3ASR Registration: Dec 2025 S-3 filing registers ~9.8M shares for resale by Series B-2 preferred holders. No takedowns yet, but creates overhang risk if converted.
Key level to watch: $205–$215 is the natural support zone (prior resistance, round-number psychology, and where the Q2 earnings gap fills). A pullback to this zone would reset R:R from 1.6:1 to 2.2:1. The $195 level (50-day SMA proximity) is the line in the sand — a break below invalidates near-term momentum.
Coherent is one of only three companies globally (alongside Lumentum and II-VI legacy capacity) that manufactures Indium Phosphide (InP) laser chips at scale. InP is the essential semiconductor material for high-speed optical transceivers — every 800G and 1.6T transceiver requires InP-based lasers. You cannot simulate photonics; you must fabricate it in specialized III-V semiconductor fabs with multi-year qualification cycles.
The company is actively ramping 6-inch InP wafer production (larger wafers = more chips per wafer = higher margins) across facilities in Sherman, TX and Järfälla, Sweden. Q2 call confirmed the fab is at 80% of target capacity for 6-inch wafers. This is a structural cost advantage that compounds — each generation of wafer scaling reduces per-unit costs while competitors remain on smaller formats.
What the market hasn't fully priced: Coherent's vertical integration spans from raw InP substrates → laser chips → transceivers → optical circuit switches (OCS). This end-to-end control means margin capture at every layer of the stack. Anderson is systematically stripping out non-AI segments (aerospace sold Sept '25, Munich tools sold Jan '26) to surface this pure-play AI optics multiple.
The datacenter optical interconnect market is undergoing its most significant technology transition since 100G. As GPU clusters scale beyond 100,000 units (NVDA Blackwell/Vera Rubin architecture), copper interconnects hit physics limits on distance and thermal dissipation. Optical becomes mandatory.
Coherent's Datacenter & Communications segment grew 33.5% Y/Y in Q2 FY26, now representing 72% of total revenue (up from 63% Y/Y). The company reported "unprecedented demand" with bookings visibility into 2028. The 1.6T transceiver qualification cycle has begun, with revenue contribution expected to layer on top of the existing 800G base through calendar 2026–2027.
The bottleneck dynamic: Demand exceeds supply for InP-based laser chips by an estimated 25–30% (per LITE's Q2 call). This is a physics-constrained supply gap — new InP fab capacity takes 18–24 months to qualify. Coherent and Lumentum are the primary beneficiaries of this scarcity, with pricing power improving as allocation tightens.
Jim Anderson joined as CEO in 2024 from Lattice Semiconductor, where he executed one of the most successful operational turnarounds in the semiconductor industry — transforming Lattice from a commodity FPGA company into a high-margin, high-growth AI edge player (stock +1,000% under his tenure).
At Coherent, the playbook is identical: divest low-margin businesses, focus R&D on AI-adjacent products, expand gross margins through mix shift and operational efficiency. Results so far: GAAP gross margin expanded 145 bps Y/Y to 36.9% in Q2. Non-GAAP gross margin hit 39.0%. Q3 guidance calls for 38.5%–40.5% non-GAAP gross margin — continued expansion. The company went from $49M full-year net income in FY25 to a Q2 FY26 run rate of ~$750M annualized.
The under-modeled opportunity: If Anderson executes the full portfolio simplification (exiting remaining non-core industrial segments), Coherent could command a pure-play AI optics multiple of 35–40x forward earnings rather than the blended 43x it currently trades at. The "sum-of-parts discount" is real and closing.
InP vertical integration is a physics moat — you cannot replicate a III-V semiconductor fab in less than 3 years. Coherent is one of three companies with at-scale InP production. The 6-inch wafer ramp (80% of target) creates structural cost advantage vs competitors on 4-inch. Customer switching costs are extreme: transceiver qualification cycles take 12–18 months. Book-to-bill >4x with visibility to 2028 means customers are locked in. Anderson's divestiture strategy is surfacing a pure-play AI optics multiple.
~May 6: Q3 FY26 earnings — 1.6T ramp confirmation, gross margin trajectory. ~Jun: Potential non-core divestiture announcement (pure-play catalyst). H2 CY2026: 1.6T transceiver revenue inflection as hyperscaler adoption accelerates. Ongoing: Optical Circuit Switch (OCS) market development — COHR pursuing $2B+ long-term opportunity. Mix of confirmation (Q3 earnings) and new-information (divestitures, OCS) events provides alpha opportunities beyond simple beats.
InP laser chip supply deficit of 25–30% (per LITE CEO's Q2 disclosure). New capacity takes 18–24 months to qualify. Demand accelerating as 800G deployments continue + 1.6T adoption begins layering on top. GPU cluster scaling beyond 100K units makes optical mandatory. NVDA Blackwell and Vera Rubin architectures require more optical interconnects per rack than prior generations. No substitute for InP at 800G+ speeds — the physics constraint is insurmountable in the 180-day window.
The COHR turnaround story is now broadly consensus. Stock up 383% from 52-week low. 142.5% in trailing 12 months. Analyst sentiment overwhelmingly bullish (Zacks Rank #2 Buy). The remaining edge lives in: (1) magnitude of margin expansion still under-modeled, (2) divestiture optionality not in estimates, (3) OCS market size surprise potential. But the "AI optics bottleneck" narrative is widely known. Would a generalist PM say "obviously" — increasingly yes. Edge decay is the binding constraint on score.
Phase 1 Infrastructure remains the safest capital allocation within the AI framework — hyperscaler capex guides ($175B+ Google, $135B Meta, $100B+ Amazon) directly flow to optical infrastructure spend. Rate cut trajectory supports growth multiples. However, VIX at 20.29 with narrowing breadth creates risk for high-beta names (COHR beta 1.87). Tariff uncertainty on optical components manufactured in Sweden and Asia is a non-trivial headwind. Net: macro is supportive for the thesis but the stock's beta profile creates execution risk in a transitional regime.
| Factor | COHR | LITE | Edge |
|---|---|---|---|
| Moat Durability (30%) | 85 | 88 | LITE Narrower focus = purer moat. $400M OCS backlog is differentiated. |
| Catalyst Runway (25%) | 80 | 82 | LITE Q3 guided to $805M (+85% Y/Y). OCS shipments ramp H2. More catalysts, more new-info. |
| Supply-Demand (20%) | 85 | 85 | TIE Both constrained on InP. LITE under-shipping demand by ~30%. |
| Edge Decay (15%) | 60 | 52 | COHR LITE up 327% in 12mo, P/E 169x. More consensus, more priced in. |
| Regime Alignment (10%) | 65 | 58 | COHR LITE beta even higher. More exposed to VIX expansion. Negative FCF concerns. |
| COMPOSITE | 78.0 | 76.0 | COHR by 2pts |
Verdict: LITE is executing spectacularly — $665M Q2 revenue, $805M Q3 guidance, OCS backlog surging. It may be the better business near-term. But at 169x TTM P/E and 327% appreciation, the edge decay is severe. COHR offers comparable supply-demand exposure with a lower multiple (117x TTM, ~43x fwd), less consensus crowding, and divestiture optionality that LITE lacks. COHR wins on risk-adjusted forward alpha — the less priced-in name in a duopoly where both benefit from the same bottleneck.
| Factor | COHR | APH | Edge |
|---|---|---|---|
| Moat Durability (30%) | 85 | 82 | COHR InP physics moat > connector engineering moat. APH has breadth but less irreplaceability. |
| Catalyst Runway (25%) | 80 | 72 | COHR APH's catalysts are confirmation. COHR has divestiture/OCS new-info events. |
| Supply-Demand (20%) | 85 | 78 | COHR InP scarcity is more acute than connector supply constraints. APH has more supplier alternatives. |
| Edge Decay (15%) | 60 | 58 | COHR Marginal. Both consensus buys. But APH's Q4 beat was "sell the news" (-15% pre-market). |
| Regime Alignment (10%) | 65 | 75 | APH Lower beta. Diversified revenue (defense, auto, industrial). Better defensive characteristics. |
| COMPOSITE | 78.0 | 74.0 | COHR by 4pts |
Verdict: Amphenol is the gold standard of execution — $23B in sales, 52% Y/Y growth, 27.5% operating margins, $4.4B FCF, 1.31 book-to-bill. It is the better business by almost every quality metric. But it's a $183B company growing at 43–45% (acquisition-fueled). COHR at $35B offers higher operating leverage on the specific bottleneck that matters most for AI infrastructure: photonics. APH is a "sleep well at night" core holding; COHR is where the asymmetric alpha lives. For a 6-month mandate targeting outsized returns, COHR has more upside per unit of capital deployed. APH is the better hold for a 3-year horizon.
| Factor | COHR | GLW | Edge |
|---|---|---|---|
| Moat Durability (30%) | 85 | 80 | COHR InP is rarer than fiber. GLW has 170yr moat in glass science, but fiber has more competitors. |
| Catalyst Runway (25%) | 80 | 78 | COHR Marginal. GLW has Meta $6B deal + Springboard upgrades. But most catalysts are priced in after 50% YTD rally. |
| Supply-Demand (20%) | 85 | 75 | COHR CEO Weeks admitted "there is enough fiber in the world." Scarcity is in GLW's new high-density products, not fiber broadly. InP scarcity is absolute. |
| Edge Decay (15%) | 60 | 50 | COHR GLW up 50% YTD, 6th best in S&P 500. Meta deal is fully priced. "Everyone knows." COHR's margin expansion story is less crowded. |
| Regime Alignment (10%) | 65 | 72 | GLW Lower beta. Diversified (display, auto, life sciences). Meta deal provides contracted revenue floor. |
| COMPOSITE | 78.0 | 73.0 | COHR by 5pts |
Verdict: Corning is having a spectacular 2026 — the Meta $6B deal, Springboard target upgrades ($11B incremental by 2028), and 50% YTD rally make it the most momentum-rich name in this comparison. But that's the problem: at 70x TTM P/E with consensus PT of ~$114 (stock at $131), the sell-side hasn't even caught up. The stock is trading on narrative, not numbers. COHR's value proposition is different: the supply constraint is more acute (InP vs fiber), the margin expansion story is earlier-innings, and the stock hasn't had its "Meta deal" moment yet. GLW is the trade that already worked. COHR is the trade that's working next.
| # | Ticker | Alpha v2 | Price | Fwd P/E | YTD | Role | Signal |
|---|---|---|---|---|---|---|---|
| 1 | COHR | 78 | $219.96 | ~43.5x | +383%* | Active optics: transceivers, InP lasers, OCS | BUY ON PULLBACK |
| 2 | LITE | 76 | $600.42 | ~55x | +327%* | Active optics: lasers, transceivers, OCS | HOLD — Extended |
| 3 | APH | 74 | $148.57 | ~40x | +164%* | Copper + fiber connectors, broad infrastructure | CORE HOLD |
| 4 | GLW | 73 | $130.52 | ~42x | +250%* | Passive fiber, cable, connectivity, display | HOLD — Extended |
*Approximate % above 52-week low. Fwd P/E estimates based on FY26/CY26 consensus where available.
Triggers: Q3 FY26 earnings blow out with revenue above $1.84B guidance ceiling and non-GAAP gross margin exceeding 40.5%. Strategic divestiture announced (remaining industrial laser segments), unlocking pure-play AI optics re-rating. 1.6T transceiver revenue inflection arrives earlier than expected. Second major hyperscaler signs multi-year supply agreement for OCS. Sell-side targets rise to $260–$300 range. Multiple expands to 50–55x forward earnings as growth accelerates.
Valuation support: At $280, COHR trades ~50x FY26E forward earnings — rich but defensible for a company growing revenue 22% pro-forma with expanding margins and a multi-year demand visibility window. LITE trades at 55x+ forward on similar growth, suggesting COHR could re-rate toward parity.
Triggers: Q3 earnings in-line with guidance ($1.70–$1.84B revenue, 38.5–40.5% non-GAAP GM). Continued datacenter strength with no negative surprises. Industrial segment "improving" as guided but no dramatic inflection. No strategic divestiture announcement in the window. Sell-side revises targets to $230–$250 range as estimates catch up to actual trajectory. Stock consolidates between current price and prior highs.
Valuation support: At $248 (midpoint), COHR trades ~44x FY26E earnings with 20%+ revenue growth and expanding margins. Reasonable for the quality and growth profile. Aligns with consensus PT rising to reflect Q2/Q3 beat cadence.
Triggers: Broader market correction (VIX >30) disproportionately hits high-beta tech (COHR beta 1.87). Q3 gross margin disappoints — InP ramp costs run hot, margins come in below 38.5% guidance floor. AI capex cycle decelerates — hyperscalers delay 1.6T deployments. Series B-2 preferred conversion triggers share overhang. Industrial recovery fails to materialize. FCF remains negative, cash position pressured by capex commitments.
Valuation floor: At $170, COHR trades ~30x FY26E forward earnings and ~3.5x EV/Revenue. This approaches trough valuation for a company with 20%+ revenue growth and structural demand tailwinds. Anderson's divestiture optionality creates a floor — any asset sale would crystallize value the market isn't pricing. Strong support at $155 (prior breakout level, multiple institutional entry points).
| Risk | Severity | Prob. | Mitigation |
|---|---|---|---|
| High beta in VIX 20+ regime — Market correction amplified by 1.87 beta | HIGH | 30% | Position sizing discipline (3–6% max). Tight stop at $195. Phase 1 infrastructure thesis provides fundamental floor even in drawdown. |
| Gross margin disappointment — InP ramp costs, inventory builds pressure margins | HIGH | 20–25% | Q3 guidance of 38.5–40.5% GM already incorporates ramp costs. Anderson has delivered 4 consecutive beats. Monitor Q3 for sequential progression. |
| Sell-side target ceiling — Trading 5% above consensus PT of $209 | MED | 40–50% | Targets typically lag price in momentum names. 4 consecutive beats + above-consensus guidance should force revisions. If targets don't rise by Q3, exit risk. |
| Share dilution from S-3ASR — 9.8M shares registered for resale | MED | 15–20% | No takedowns yet. Represents ~5% of float. Manageable if absorbed into existing demand. Monitor SEC filings for conversion activity. |
| LITE competitive pressure — Lumentum executing faster on OCS and transceivers | MED | 25% | Duopoly dynamics mean both benefit from scarcity. LITE's success validates the thesis for COHR. Customer diversification reduces single-competitor risk. |
| AI capex cycle slowdown — Hyperscalers reduce datacenter buildout | MED | 15% | $650B+ committed capex for CY2026. Bookings visibility to 2028. Optical is later-cycle than GPUs — demand persists even if GPU orders moderate. |
| Date | Event | Impact | Significance |
|---|---|---|---|
| Feb 25–26 | NVDA Q4 FY26 Earnings | MED | Blackwell ramp data = read-through for optical transceiver demand. NVDA capex commentary signals COHR demand trajectory. |
| ~Mar 17–18 | FOMC Meeting | LOW | Rate path clarity. Cuts favor growth multiples. Holds are neutral. |
| ~Apr | OFC 2026 (Optical Fiber Conference) | MED | Industry conference. Product announcements, 1.6T roadmap updates, competitive positioning signals. |
| ~May 6 | COHR Q3 FY26 Earnings | CRITICAL | 1.6T ramp evidence. Gross margin trajectory. Industrial recovery progress. FCF inflection signal. Guidance for Q4 FY26 sets H2 expectations. |
| ~Jun | Potential Strategic Divestiture | HIGH | Sale of remaining non-core industrial segments would unlock pure-play AI optics multiple. New-information catalyst. |
| ~Jul–Aug | COHR Q4 FY26 Earnings | HIGH | Full fiscal year results. 1.6T revenue ramp in full view. FCF must inflect positive. Sets FY27 trajectory. |
| Ongoing | 1.6T Transceiver Adoption | MED | Hyperscaler qualification milestones. Each design win is a multi-year revenue commitment. Layering on top of 800G base. |
COHR is trading 5% above average analyst price target and 12% above the 50-day SMA. The stock has appreciated 383% from its 52-week low. Buying at extended levels ahead of a 2.5-month earnings gap (next report ~May 6) carries gap-down risk if macro deteriorates or sector rotation hits high-beta names. Two disciplined entry paths:
Trigger: Pullback to $205–$215 support zone (prior resistance, gap fill area).
Entry zone: $205–$215
Stop: $195 (-5% to -10%)
Target: $260–$280 (+21% to +37%)
Most likely catalyst: Pre-earnings consolidation or broader market pullback compresses VIX-sensitive names. R:R improves to 2.2:1+ at $210.
Trigger: Confirmed close above $247 (52-week high) on volume >5M shares.
Entry zone: $247–$255
Stop: $225 (-9% to -12%)
Target: $280–$310 (+10% to +22%)
Most likely catalyst: Q3 earnings beat gaps above ATH, triggering momentum and forcing short covering. Requires conviction sizing given compressed R:R.
Key difference from VST: VST's entry framework centered on a specific resistance level ($180 / 200-day MA) that would confirm a regime change. COHR doesn't have that clean inflection point — it's already in a confirmed uptrend 73% above its 200-day MA. The risk here isn't trend direction but entry timing within the trend. The 2.5-month gap to next earnings creates dead space where only macro/sector forces move the stock. Patience rewards.
The 180-day thesis rests on three pillars: (1) the 800G-to-1.6T transceiver transition creates irreplaceable demand for Coherent's InP laser technology — demand that exceeds supply by 25–30% with no relief in the window; (2) Jim Anderson's "Anderson playbook" of portfolio simplification and margin expansion is still early-innings — Q2's 39% non-GAAP gross margin is heading toward 40%+ by H2, with each divestiture surfacing a purer, higher-multiple business; and (3) the OCS market ($2B+ TAM) represents a new-information catalyst that could re-rate the stock if Coherent captures meaningful share alongside Lumentum.
The risk is real: 1.87 beta in a VIX 20 environment, negative TTM FCF, trading above consensus PTs, and edge decay as the turnaround narrative becomes consensus. But among the four optical infrastructure names (COHR, LITE, APH, GLW), Coherent offers the best combination of supply-demand acuity, margin expansion optionality, and relative valuation. It's the most alpha-per-dollar name in the connectivity stack.
Expected value of +8.3% over 180 days with 1.6:1 R:R at current price improves to +15%+ and 2.2:1 R:R on a pullback to $210. The framework demands patience. The thesis demands conviction. Both can coexist.