Coherent's Recent Q2 Results: Balancing Premium Valuation With Growth Momentum

Coherent Corp. (COHR) recently reported its second-quarter fiscal 2026 results, delivering earnings per share of $1.22, representing a 28.4% year-over-year increase from the prior-year quarter. Revenue came in at $1.6 billion, marking 13.9% growth compared to the same period last year. The company exceeded Wall Street’s expectations, continuing its track record of beating consensus estimates. Over the past 60 days leading up to the earnings announcement, upward EPS revisions outnumbered downward adjustments for Coherent, with the consensus estimate moving up 1.7% to $1.22 per share—a sign of strengthened analyst confidence in the company’s direction.

AI Datacenter Acceleration Powers Coherent’s Growth Engine

The standout factor driving Coherent’s momentum has been exceptional demand for its high-end components serving artificial intelligence infrastructure. During the earnings call, management highlighted the surge in demand for 1.6T transceivers and confirmed expectations for exponential growth in 2026. The company ramped up its 6-inch Indium Phosphide (InP) production at its facility in Jarfalla, Sweden, to meet surging requirements from AI datacenter operators. According to industry research, the global AI datacenter market is projected to expand at a compound annual growth rate of 27.5% through 2035, positioning Coherent to capture significant share of this opportunity.

The Optical Circuit Switch (OCS) market represents an additional lever for Coherent, with management identifying a $2 billion addressable opportunity in the long term. As enterprises continue investing heavily in AI infrastructure, Coherent is well-positioned to capture a larger portion of this emerging segment, cementing its role as a critical infrastructure supplier.

Coherent’s Stock Performance: Outpacing Peers but at Premium Valuations

Coherent’s equity has appreciated substantially over recent periods. Over the trailing twelve months, COHR shares have surged 142.5%, far outpacing its semiconductor industry peer group, which registered only 7% growth. This performance also exceeded the broader Zacks S&P 500 composite’s 19.6% return. Among comparable companies, Coherent significantly outperformed Figure Technology Solutions (FIGR), which gained 82.8%, while Skillsoft (SKIL) declined 68.4% during the same period.

The six-month performance tells a similar story. COHR has climbed 98.8% in the past half-year, demolishing the industry’s 3.9% return and the S&P 500’s 13.1% gain. Coherent’s outperformance versus Figure Technology Solutions’ 82.9% increase is particularly notable, highlighting the market’s confidence in the company’s AI exposure.

However, this substantial appreciation has pushed Coherent’s valuation into premium territory. The stock currently trades at a trailing 12-month price-to-earnings ratio of 36.11x, significantly higher than its industry average of 23.55x. By comparison, Coherent’s valuation exceeds that of Figure Technology Solutions at 57.25x but substantially exceeds Skillsoft’s 2.17x—reflecting divergent market assessments across the sector.

Financial Strength and Operational Efficiency

Beyond topline growth, Coherent has demonstrated impressive operational scalability. In fiscal 2025, the company achieved 51% year-over-year revenue growth in the data center and communications segment, with the data center business itself surging 61%. This momentum extended into the first quarter of fiscal 2026, where Coherent posted 17.3% year-over-year revenue growth, with data center revenues advancing 23%.

Operating margins expanded substantially, gaining 1,081 basis points year-over-year in Q1 FY2026, demonstrating that the company is not simply growing revenue but simultaneously improving profitability—a critical metric in competitive markets. Coherent’s balance sheet reinforces its operational strength, with cash reserves of $875 million as of September 2025 against debt of only $48 million. This fortress-like financial position provides the company ample room to invest in capacity, R&D, and strategic opportunities. The current ratio of 2.33 exceeds the industry average of 1.58, affirming Coherent’s ability to meet short-term obligations comfortably.

Competitive Headwinds and Sector Challenges

Despite Coherent’s remarkable growth trajectory and market positioning, the company faces meaningful competitive pressure, particularly in the Silicon Carbide (SiC) sector where it competes directly with established players like Wolfspeed and ON Semiconductor. Notably, Coherent’s Material segment experienced a 6% year-over-year revenue decline in fiscal 2025, signaling softness in end-market demand for certain product lines.

Maintaining leadership in such a competitive landscape will require sustained capital investment, potentially pressuring profitability if execution falters. This dynamic creates a critical tension for the company: balancing aggressive R&D spending to defend market share while protecting profit margins and shareholder returns.

Investment Perspective: Hold Pattern Remains Prudent

Given Coherent’s exceptional growth trajectory, commanding competitive position in AI infrastructure, and strong financial foundation, the company warrants careful positioning. However, several factors recommend a measured approach. The stock’s 142.5% one-year gain has pushed valuations well above sector averages, at 36.11x trailing earnings versus the 23.55x industry benchmark. This pricing implies that much of Coherent’s growth opportunity and the broader AI infrastructure tailwind are already reflected in the stock.

Competitive intensity in the SiC market, coupled with mixed revenue trends in certain segments, introduces execution risk that investors must monitor. While Coherent’s data center and communications business remains robust, margin expansion cannot be taken for granted as the company navigates competitive dynamics and potential pricing pressures.

For investors evaluating Coherent, a wait-and-see stance allows for a clearer view of how the company manages near-term challenges. Establishing positions at lower entry points following inevitable market corrections would offer a more attractive risk-reward profile than pursuing the stock at current valuations. Existing shareholders should hold and reassess quarterly as Coherent demonstrates its ability to maintain growth while defending profitability in an increasingly competitive environment.