Coherent quarterly profit jumps 91% on AI data centre demand

By Amara Osei

Coherent Corp. reported adjusted net earnings of $422 million for the quarter ended September 30, up 91%, while revenue rose 49.9% to $2.37 billion. The photonics group also posted adjusted earnings of $2.09 per share, compared with $1.16 a year earlier, an 80% increase.

What drove the quarter?

Shares gained 4% in premarket trading Thursday after the release. Coherent said established businesses delivered strong growth while new growth areas began ramping up.

Data centre and communications revenue surged 79% year over year to $1.95 billion. Industrial segment revenue, by comparison, fell 14.8% to $418.6 million. The first business line expanded while the second contracted.

Chief Executive Jim Anderson identified the practical driver: the transition from copper to optical connectivity in AI data centres. That move, he said, is increasing demand for bandwidth and energy-efficient technologies. The scale of growth was visible. The timing of conversion was not.

Stifel analysts wrote:

"In our view, customer commitments increasingly support capacity investment, while internal laser substitution remains an unharvested margin lever. The next question is how quickly those commitments convert into higher-margin revenue and cash."

The note paired support for capacity investment with an open question about the speed of revenue and cash conversion. Optical connectivity demand from AI data centres was the clear driver of growth.

How much did profitability improve?

Coherent reported a GAAP gross margin of 39.1%, up 254 basis points from a year earlier. Adjusted gross margin increased 184 basis points to 40.6%. Adjusted operating income climbed 78.1% to $550.3 million, ahead of the 49.9% revenue increase.

The margin figures gave the results a second dimension: profitability advanced faster than the top line. Profitability improved faster than revenue, but industrial revenue contracted 14.8%.

What does the guidance imply?

Coherent forecast second-quarter revenue of $2.55 billion to $2.75 billion and adjusted earnings of $2.28 to $2.48 per share, both above first-quarter revenue of $2.37 billion and adjusted EPS of $2.09.

Coherent expects fiscal 2027 pro forma revenue growth to exceed 60%, citing continued demand across its growth markets. It expects its first $3 billion quarterly revenue milestone by the end of fiscal 2027 and its first $4 billion quarter in fiscal 2028.

Coherent also raised its longer-term adjusted gross margin target, expecting to exceed 45% before the end of calendar 2028. The target compares with the 40.6% adjusted gross margin recorded for the September 30 quarter. The guidance points to continued expansion through fiscal 2028, with revenue and margin milestones moving higher.

What do analysts make of valuation?

B. Riley Securities analysts wrote:

"COHR continues to execute well, and we expect estimates to keep moving higher."

They then qualified that view:

"However, the group's multiples are now driven more by sentiment on AI funding than by quarterly results, and we think further estimate increases are likely to be offset by multiple compression until funding concerns ease."

B. Riley maintained a Neutral rating on Coherent. Operating performance and estimates improved, while multiples now depended more on sentiment about AI funding than on quarterly results. Execution strengthened, but AI-funding sentiment remained the key valuation caution.