Coherent Stock Falls 2.7% Since In-Line Q3 Earnings & Revenue Beat
Coherent Corp.COHR reported third-quarter fiscal 2026 adjusted earnings of $1.41 per share, which matched the Zacks Consensus Estimate and increased 55% year over year. Revenues of $1.8 billion rose 21% year over year and surpassed the consensus estimate of $1.78 billion by 1.5%.
However, the results did not impress investors, as the stock has declined 2.7% since the earnings release on May 6.
Coherent Corp. Price, Consensus and EPS Surprise
Coherent Corp. price-consensus-eps-surprise-chart | Coherent Corp. Quote
Management highlighted exceptionally strong demand trends across AI networking infrastructure, with bookings reaching record levels and backlog extending into 2028. The company also noted that long-term agreements now extend through the end of the decade.
AI Data Center Demand Drives COHR Growth
Coherent’s Datacenter & Communications segment remained the primary growth engine, accounting for 75% of total revenues in the quarter compared with 65% in the year-ago period. Segment revenues increased more than 40% year over year.
Within the data center business, revenues climbed 13% sequentially and 37% year over year, marking the second consecutive quarter of double-digit sequential growth. Growth was fueled by strong demand for 800G and 1.6T transceivers as hyperscale customers expanded their AI infrastructure deployments. Management expects further acceleration in the current quarter, supported by improving supply availability and capacity expansion initiatives.
The communications business also delivered strong results, with revenues increasing 16% sequentially and 60% year over year. Demand remained robust for data center interconnect products, including ZR and ZR+ transceivers, as well as broader transport networking solutions.
Coherent Expands Capacity Amid Strong Orders
Management stated that indium phosphide capacity expansion remains a key strategic priority due to industry-wide supply constraints. The company expects to double its internal indium phosphide output capacity by the end of 2026, one quarter ahead of schedule and plans to more than double capacity again by the end of 2027.
Coherent’s 6-inch indium phosphide platform is now producing electro-absorption modulated lasers, CW lasers and photodiodes with yields exceeding legacy 3-inch production lines. During the quarter, the company shipped its first transceivers incorporating components manufactured on the 6-inch platform, contributing to both revenue growth and gross margin expansion.
Management also emphasized growing opportunities in optical circuit switching (OCS) and co-packaged optics (CPO). The company increased its estimate of the OCS market opportunity to more than $4 billion and expects initial scale-out CPO revenues to ramp up in the second half of 2026.
NVIDIA Partnership Strengthens Long-Term Outlook
During the quarter, Coherent announced a strategic partnership with NVIDIA NVDA focused on advanced optical networking and CPO technologies for AI data centers. The agreement includes a $2 billion equity investment from NVIDIA and a multi-year supply agreement extending through the end of the decade.
Management believes the partnership strengthens Coherent’s position in next-generation AI networking infrastructure and creates meaningful long-term revenue visibility across lasers, optical components and integrated photonic systems.
Margins Expand on Better Mix & Cost Efficiencies
Non-GAAP gross margin expanded 105 basis points year over year to 39.6%, driven by lower product input costs, pricing optimization and yield improvements from the 6-inch indium phosphide ramp.
Non-GAAP operating margin improved to 20.3% from 18.6% in the prior-year quarter. Meanwhile, non-GAAP operating expenses increased due to continued investments in research & development initiatives supporting transceivers, CPO and high-value optical networking systems.
The company ended the quarter with $3 billion in cash, up significantly from $1.5 billion in the previous quarter, primarily due to NVIDIA’s investment. Coherent also reduced its debt leverage ratio from 1.7 to 0.5 sequentially after making $162 million in debt payments.
COHR Guides Strong Sequential Growth
For fourth-quarter fiscal 2026, Coherent expects revenues to be between $1.91 billion and $2.05 billion, with the midpoint of $1.98 billion marginally lower than the Zacks Consensus Estimate of $1.99 billion. The company guided adjusted earnings per share between $1.52 and $1.72, with the midpoint of $1.62 being higher than the Zacks Consensus Estimate of $1.55. Adjusted gross margin is expected to be in the range of 39-41%.
Management expects fiscal 2027 revenue growth to exceed fiscal 2026 growth, supported by expanding AI infrastructure deployments, growing optical networking demand and continued production capacity increases.
Coherent carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Recent Earnings Snapshots
Equifax Inc. EFX reported better-than-expected first-quarter 2026 results. EFX’s adjusted earnings per share of $1.86 beat the Zacks Consensus Estimate by 10.1% and increased 21.6% from the year-ago quarter. EFX’s revenues of $1.6 billion surpassed the consensus estimate by 2.3% and improved 14.4% year over year.
Rollins, Inc. ROL posted impressive first-quarter 2026 results. ROL’s adjusted earnings of 24 cents per share matched the consensus mark and rose 9.1% from the year-ago quarter. ROL’s total revenues of $906.4 million surpassed the consensus mark by 1.3% and increased 10.2% year over year.
Beyond Nvidia: AI's Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
See Stocks Now >>This article originally published on Zacks Investment Research (zacks.com).
