Coherent positions itself as a primary architect for future AI data centers. Analysts doubled the Total Addressable Market (TAM) estimate for its Optical Circuit Switching (OCS) to over $4 billion.
The company maintains a competitive edge through 6-inch Indium Phosphide (InP) wafer manufacturing. This process yields four times the die count of standard 3-inch wafers. Production costs remain less than half the per-device price of competitors. This technology enables critical power efficiency for large-scale GPU clusters.
Significant risks include thin-film lithium niobate (TFLN) technology potentially displacing InP modulators. Such a shift could render Coherent’s capital expenditures obsolete. The company also faces an ongoing BIS export control investigation.
Analysts maintain a Hold rating due to a high forward P/E ratio. Major growth drivers are not expected to ramp up significantly until the second half of 2027.