Coherent's Post-Earnings Outlook: Balancing Growth Momentum Against Premium Valuation

Coherent Corp. (COHR) recently disclosed its second-quarter fiscal 2026 results, revealing financial performance that reinforces the company’s position in the AI infrastructure landscape. The semiconductor supplier reported earnings of $1.22 per share, representing a 28.4% increase year-over-year, with revenues reaching $1.6 billion—up 13.9% from the prior-year quarter. These results align with analyst expectations and underscore Coherent’s ability to capitalize on the surging demand for AI-related semiconductor solutions. However, investors must weigh this strong operational performance against the stock’s dramatic valuation expansion and intensifying competitive pressures.

Strong Q2 Performance Driven by AI Datacenter Demand

Coherent’s earnings beat reflects sustained momentum in its core product portfolio. The company experienced exceptional demand for its 1.6T transceivers and continues to benefit from elevated bookings across its optical and semiconductor solutions. Management’s recent production expansion—ramping up 6-inch Indium Phosphide (InP) manufacturing capacity in Jarfalla, Sweden—speaks to the extraordinary demand from AI datacenter operators worldwide.

Market research from Precedence Research projects the global AI datacenter sector will expand at a compound annual growth rate of 27.5% through 2035, positioning suppliers like Coherent to capture significant revenue upside. The company’s Optical Circuit Switch (OCS) platform, with an estimated $2 billion long-term market opportunity, represents another key growth lever as data center architecture evolves to support AI workloads. In fiscal 2025, Coherent registered a 51% year-over-year surge in data center and communications revenues, with the data center segment alone climbing 61%—demonstrating the company’s ability to scale rapidly within this expanding market.

Stock Soars but Valuation Concerns Emerge

Coherent’s stock has delivered exceptional returns, climbing 142.5% over the trailing 12 months, substantially outpacing its industry average of 7% and the broader S&P 500’s 19.6% gain. Over the past six months alone, shares have surged 98.8%, compared to just 3.9% for the industry and 13.1% for the market composite. This dramatic appreciation has elevated Coherent’s valuation metrics significantly. The stock now trades at a trailing 12-month P/E ratio of 36.11X, nearly 53% above the industry median of 23.55X.

In peer comparisons, Coherent commands a valuation premium relative to Figure Technology Solutions (trading at 57.25X P/E) and Skillsoft (at 2.17X P/E). The steep valuation multiple implies that much of the company’s growth opportunity—and the AI datacenter tailwind—is already reflected in current pricing. This creates a meaningful risk for new investors entering at elevated levels.

Competition and Competitive Pressures Pose Risks

Despite Coherent’s strong presence in semiconductors, the company faces formidable competitive pressures, particularly in the Silicon Carbide (SiC) sector where rivals Wolfspeed and ON Semiconductor maintain significant market share. In fiscal 2025, Coherent’s material segment revenues declined 6% year-over-year, signaling softening end-market demand in this critical area. Sustaining growth while defending market share against these well-capitalized competitors will require sustained R&D investment, potentially pressuring profitability expansion.

The company does maintain financial flexibility for such investments. Coherent holds $875 million in cash reserves as of September 2025, against just $48 million in debt, and maintains a current ratio of 2.33—well above the industry average of 1.58. This solid balance sheet provides a financial cushion, yet capital deployment decisions will be critical to competitive positioning.

The Investment Case: Hold for Better Entry Point

Coherent merits a Hold rating despite its operational achievements and favorable AI datacenter trends. The combination of a premium valuation multiple at 36.11X earnings, intense competitive dynamics in core product segments, and the substantial stock appreciation already achieved suggests a cautious stance is warranted. Investors should assess whether Coherent can maintain its growth trajectory amid rising competitive pressures and potential margin compression from increased R&D spending.

A wait-and-see approach allows investors to identify more attractive entry points as the market gains greater clarity on competitive outcomes and sustainable profit margins. The company’s exposure to the high-growth AI datacenter market remains compelling, but valuation risk at current levels outweighs the near-term upside potential.