Coherent has carved out an unusual position in the optics and photonics market. It is one of the broadest photonics companies available to investors and now works with most hyperscalers, with a deep relationship with NVIDIA.
The business was built through M&A by II-VI absorbing Finisar in 2019 and then the original Coherent in 2022, which is why its activities span from raw crystal growth all the way through to finished optical subsystems.
Few competitors have anything close to that range of capabilities.
The past year has been one of deliberate focusing on AI and data. Under chief executive Jim Anderson, the company has sold its Aerospace & Defense business, a deal that closed in September 2025, and its Munich operation, which closed in January 2026.
These were a sign of intent that Coherent wants to be seen as a data centre optics company. Investors have rewarded the focus, with Coherent among the leading winners of the AI-infrastructure trade. Shares have surged from roughly $50 in 2025 to around $350 today.
Product portfolio
The business divides into two segments. Datacenter & Communications is the growth engine, at roughly 79% of revenue. Industrial is the other – much smaller and currently declining.
Within Datacenter & Communications, optical transceivers are the core product. The range spans 400G, 800G and now 1.6T, with 3.2T and higher already mapped on the roadmap.
What sets Coherent apart here is that it builds 1.6T modules across three laser technologies simultaneously: silicon photonics PICs, InP EMLs, and 200G GaAs VCSELs.
Sitting beneath the transceivers is a deep portfolio of InP laser chips and components: indium phosphide lasers, modulators and photodiodes. It includes a 400MW high-power CW laser aimed at co-packaged optics, 200G EMLs for 1.6T transceivers, differential EMLs for 400G-per-lane performance, and high-speed 200G and 400G photodiodes.
Co-packaged optics is a growing line in its own right, with Coherent supplying the laser sources and components for switch-level optical integration.
There is also a systems dimension.
The company has shipped optical circuit switch systems to seven customers, and Google’s Ironwood architecture has helped validate the line. Datacenter interconnect and multi-rail transport products, built for scale-across links between data centres, are expected to see initial revenue ramp in the first half of calendar 2027.
NVIDIA partnership
In March 2026, NVIDIA invested $4 billion across Coherent and Lumentum, $2 billion of which went to Coherent as part of a broader relationship, specifically to accelerate indium phosphide capacity.
Coherent’s CW lasers are a key family covered by the supply agreement, feeding NVIDIA’s Spectrum-6 and Kyber CPO architectures. The scale of the demand behind that partnership is worth pausing on. Industry forecasts project 1.6T module demand to jump from 1.8 million units in 2025 to more than 30 million in 2026, with NVIDIA accounting for over 60% of that and Google and Meta making up most of the rest.
Those two hyperscalers, Google and Meta, are the other major buyers of 1.6T optics.
What sets Coherent apart
The core differentiator is vertical integration across multiple optical technologies. Where rivals tend to specialise, Coherent designs and manufactures in-house across silicon photonics, InP and VCSELs.
The notable exception is DSPs, which it outsources. That breadth is what lets it offer 1.6T across three laser sources and, in effect, hedge its bets on whichever technology ultimately wins the market.
The single most important asset, though, is InP capacity. In August 2025, Coherent began production on what it describes as the world’s first six-inch indium phosphide production platform, split between Sherman, Texas and Järfälla, Sweden.
The move from three-inch to six-inch wafers roughly quadruples output per wafer, and management reports that early yields are encouraging, running higher yield and better throughput on the new six-inch lines than on its mature three-inch ones.
This is the crux of the investment case.
InP lasers are the genuine bottleneck across the entire industry, so owning that supply is the moat. Coherent’s InP lasers are sold out through 2027, and the company plans to double internal InP output by the end of 2026 and more than double it again over the course of 2027.
Financials
For the full 2026 fiscal year, revenue rose $7.12 billion, up 22.5% from $5.81 billion the year before. Much of the acceleration came in the fourth quarter, where revenue of $2.05 billion was up 33.7% year over year.
The Datacenter & Communications segment did the heavy lifting, contributing $1.62 billion, or 79% of sales, and growing 59% on a pro forma basis.
Non-GAAP earnings per share came in at $1.74, up from $1.00 a year earlier, a 74% increase. Anderson noted that earnings grew more than twice as fast as revenue, a signal that the model’s operating leverage is finally showing through. Non-GAAP gross margin for the quarter reached 40.2%, up from 38.1%.
“Fiscal 2026 was an outstanding year for Coherent, with record revenue, significant margin expansion, and non-GAAP EPS growth that was more than twice the rate of revenue growth” said Jim Anderson, CEO.
“We enter fiscal 2027 with exceptional customer demand, expanding production capacity, and multiple new growth platforms beginning to ramp. As AI datacenter architectures increasingly transition from copper to optical connectivity, we believe Coherent’s broad photonic technology portfolio and manufacturing scale uniquely position us to deliver accelerating growth and capitalize on this multi-year opportunity.”
As with many AI-related companies, capital expenditure is high at around $1.1 billion in the fourth quarter alone, as the company races to add capacity. That spending is the main drag on free cash flow at present. But this will not come as a surprise.
Beyond capex considerations, the bull case for Coherent relies heavily on execution.
The capacity plan depends on achieving production-grade yields on six-inch InP wafers, a transition the broader industry has not yet completed at volume. Any shortfall could hand an opening to Lumentum or nLIGHT.
And then there is the valuation, which already prices in a great deal of good news, with the stock trading well above 100 times trailing earnings, though it is worth noting the forward multiple is lower than Lumentum’s.
With Coherent and other AI stocks, the market is prepared to look forward three or four years to where they could be in terms of earnings. This leaves the stock vulnerable to sharp pullbacks that may present the opportunity to enter for the long-term expansion of the sector.