Last Update 25 Jan 26

Fair value Increased 8.11%

COHR: AI And Cloud Capex Exposure Will Shape Fairly Valued Outlook

Analysts have lifted their price target on Coherent to about $193 from roughly $178, citing updated expectations around revenue growth, future P/E, and the company's positioning in AI and cloud related capex.

Analyst Commentary

Recent Street research around Coherent clusters around one core theme: how well the company can turn its AI and cloud exposure into sustained earnings power while executing on capacity and product ramps.

Bullish Takeaways

Bullish analysts highlight a series of higher price targets, which they link to updated expectations for revenue growth, earnings power and P/E, especially as Coherent leans into AI and cloud related demand.
The Q1 earnings beat and above consensus Q2 outlook are cited as validation that recent capacity expansions, including key InP fabs, are starting to show through in reported results rather than just in long term plans.
Several bullish analysts point to peer commentary and internal checks as support for a constructive view on Coherent's positioning in optical and AI centric spending, which they see as important for sustaining growth and justifying higher valuation multiples.
One research note that prefers Coherent over another photonics peer ahead of results frames the setup as attractive, with Coherent seen as better aligned to current investor interest in AI and cloud capex.

Bearish Takeaways

Even within generally positive research, there is an implicit caution that expectations are now higher following multiple price target increases. This can raise the execution bar for future quarters.
Bearish analysts, or those more cautious, may focus on the risk that capacity expansions and AI related investments need to be matched by consistent order flow and margins, or valuation support could become harder to justify.
The emphasis on above consensus guidance and peer checks cuts both ways. If sector commentary or customer spending intentions soften, the same factors supporting bullish views could quickly become pressure points for the stock.

What's in the News

Coherent launched bondable diamond thermal management solutions that directly bond to semiconductor materials such as silicon, SiC, GaN, GaAs, and InP, targeting improved cooling for electronic and opto electronic devices across high power applications. (Key Developments)
The company introduced AxioView imaging fiber assemblies for cardiovascular, neurovascular, and gastrointestinal catheter based imaging, aimed at medical OEMs using OCT and NIRS systems, with debut planned at Photonics West 2026. (Key Developments)
Coherent released a new electro optic modulator for high speed CO2 laser switching in semiconductor via drilling, described as a germanium free option targeting shorter pulses and higher power handling than conventional AOM based setups. (Key Developments)
The company announced the Sapphire XT visible laser platform, a compact 1W OPS based system at 488nm, 532nm, and 561nm that targets life science tools such as super resolution microscopy and DNA sequencing, along with quantum and semiconductor uses. (Key Developments)
Coherent provided Q2 fiscal 2026 revenue guidance in the range of US$1.56b to US$1.70b, giving investors a reference point for near term expectations. (Key Developments)

Valuation Changes

Fair Value: raised from about US$178.47 to roughly US$192.95, a modest upward reset in modeled upside.
Discount Rate: edged slightly lower from about 8.71% to around 8.69%, implying a very small change in perceived risk or required return.
Revenue Growth: lifted from roughly 13.33% to about 14.34%, reflecting higher assumed top line expansion in future periods.
Net Profit Margin: trimmed from approximately 12.68% to around 12.56%, suggesting a slightly more cautious view on profitability levels.
Future P/E: increased from about 33.51x to roughly 35.60x, indicating a higher assumed earnings multiple in the updated framework.

Robust demand from AI and high-performance datacenters, plus key Apple contracts, is driving growth and strengthening Coherent's core photonics and communications segments.
Internal manufacturing investments, business divestitures, and expanding services boost margins, support debt reduction, and deliver more stable, higher-quality recurring revenue.
Mounting competition, economic uncertainty, cyclical demand, heavy investment needs, and reliance on major customers threaten Coherent's growth consistency and earnings stability.

Catalysts

About Coherent

Develops, manufactures, and markets engineered materials, optoelectronic components and devices, and optical and laser systems and subsystems for the use in the industrial, communications, electronics, and instrumentation markets worldwide.What are the underlying business or industry changes driving this perspective?

The ongoing expansion of AI datacenter infrastructure and high-performance computing is propelling structural growth in demand for advanced optical transceivers (800G, 1.6T, and beyond), optical circuit switches, and related photonics components, which is fueling robust sequential order growth and sustained revenue momentum in Coherent's datacom and communications business.
Major investments in internal manufacturing-particularly the world's first 6-inch indium phosphide production line in Texas-are providing scale and cost structure advantages, as well as improved supply chain resiliency, enabling Coherent to boost volumes, lower production costs, and expand gross margins.
The multiyear agreement with Apple for next-generation VCSELs, leveraging Coherent's U.S.-based manufacturing, is set to bring incremental high-margin revenues beginning in the second half of calendar 2026, diversifying and stabilizing the customer base and further enhancing gross margin performance.
Portfolio streamlining-such as the sale of the low-margin Aerospace & Defense business-will allow Coherent to accelerate debt paydown, optimize its capital allocation into higher-growth, higher-margin core segments, directly lifting both net margins and EPS.
Recurring services and consumables tied to an expanding installed base of industrial lasers are contributing a growing portion of stable, higher-margin revenue, which is expected to drive long-term improvement in earnings quality and support more predictable cash flows.

Coherent Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Coherent's revenue will grow by 9.8% annually over the next 3 years.
Analysts assume that profit margins will increase from -1.4% today to 9.5% in 3 years time.
Analysts expect earnings to reach $732.0 million (and earnings per share of $4.68) by about September 2028, up from $-80.6 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.7x on those 2028 earnings, up from -171.1x today. This future PE is greater than the current PE for the US Electronic industry at 23.1x.
Analysts expect the number of shares outstanding to grow by 0.74% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.84%, as per the Simply Wall St company report.

Coherent Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Heightened competition from low-cost Asian manufacturers, particularly in optical transceivers (e.g., China-based Optilink growing 60-150%), may intensify pricing pressure and risk commoditization, which could compress gross margins and threaten Coherent's market share in core growth areas.
Macroeconomic uncertainties, including persistent high cost of capital, tariff volatility, and industrial end market softness, have led Coherent to take a cautious near-term and potentially long-term outlook on its industrial lasers and materials businesses, risking inconsistent revenue growth and increased revenue variability.
Past volatility and downturns in silicon carbide demand-previously a headwind-highlight the cyclical and unpredictable nature of some industrial end-markets, exposing Coherent to possible future revenue shortfalls and margin instability if demand falls again.
Ongoing need for significant capital investment in new manufacturing (such as the ramping of 6-inch indium phosphide capacity and Sherman, TX facility upgrades) and technology platforms could increase financial risk, especially if returns on these investments are delayed or if gross margin improvements do not materialize as expected, thereby impacting net margins and earnings.
Customer concentration and lumpiness in demand, especially with large partners like Apple and major hyperscalers, could expose Coherent to abrupt revenue swings and reduce earnings stability if any key relationship weakens, contracts are lost, or design transitions result in order slowdowns.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $113.368 for Coherent based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $135.0, and the most bearish reporting a price target of just $85.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.7 billion, earnings will come to $732.0 million, and it would be trading on a PE ratio of 31.7x, assuming you use a discount rate of 8.8%.
Given the current share price of $88.47, the analyst price target of $113.37 is 22.0% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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