AI interconnect bottleneck, InP vertical integration, 1.6T margins, CPO value decomposition — alpha exposure that captures volume, price and cost at once in a supply-constrained window
Coherent is not a beta on the optical theme but alpha exposure that captures volume, price and cost at once in a supply-constrained window. The core of the thesis is not transceiver share but the triple leverage in supply, cost and mix created by InP vertical integration. But the entry valuation is not favorable — the conclusion that it is the #1 optical exposure must be kept separate from the timing of new entry.
FY2026 Q3 revenue $1.81B (+21% YoY), Datacenter & Comms 75% of total + a 6-inch InP line running (about 4x chips per wafer at less than half the cost), capacity doubling by end-2026 and doubling again by end-2027 + non-GAAP gross margin 39.6% (0.4pt from the 40%+ long-term target) + NVIDIA's $2B stake and priority supply + net-debt leverage of 0.5x, ~$3B cash, and a datacenter book-to-bill above 4x.
Structural beneficiaries — Coherent (broad exposure across InP integration, 1.6T, CPO and SiC), NVIDIA (stabilizing its optical supply chain). Pressure points — basket-wide volatility, concentration in a few hyperscaler customers, and modulation-value erosion from the CPO transition. Monitoring — quarterly datacenter book-to-bill, the 40% gross-margin crossing, 6-inch InP expansion progress, the 1.6T revenue mix, NVIDIA priority-supply renewals, and hyperscaler capex guidance.
Coherent took its name after II-VI acquired the old Coherent in September 2022. It is headquartered in Saxonburg, Pennsylvania. It was once a sprawling company mixing aerospace & defense, industrial lasers, communications and materials.
Over the past two years it has shed non-core businesses, including selling its aerospace & defense unit for about $400M. It reorganized around datacenter and communications. Its reporting segments are now simplified into two: Datacenter & Communications and Industrial.
As of FY2026 Q3 (ended March 2026), Datacenter & Communications revenue was $1.36B, up 41% from $0.97B a year earlier — about 75% of total revenue of $1.81B. Industrial was $0.44B that quarter, down from $0.53B a year earlier.
In other words, Coherent's center of gravity has shifted entirely to becoming an 'AI datacenter optical-components company.' Industrial remains an option on a cyclical recovery.
With the portfolio cleanup essentially done, investors can now value Coherent as a pure optical play without a conglomerate discount. That re-segmentation was itself one axis of the past year's re-rating.
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