Coherent’s Breakthrough Leap: Capitalizing on the AI ​​Boom

Formerly known as II-VI Incorporated, Coherent Corporation (COHR) It has established itself as a significant supplier of materials, photonics and laser technologies to a variety of target markets. The company was created from the merger of two leading laser industry giants and has since forged strong partnerships to expand its market reach and diversify its product offerings.

Significant investments in research and development (R&D) and a sharp focus on artificial intelligence (AI) products drive the company’s growth strategy. COHR aims to dominate lucrative markets such as semiconductor manufacturing equipment and life sciences with a diverse portfolio ranging from engineering materials to optoelectronic components.

The laser maker’s stock price has doubled in recent months due to surging demand for AI and improved investor confidence following a significant leadership change. Shares soared more than 22% after Jim Anderson was named the company’s new CEO on June 3, succeeding the retiring Vincent Mattera Jr.

Anderson’s impressive performance Lattice Semiconductor Corporation (LSCC)Where he has driven incredible revenue and earnings growth is what makes investors dream big. They are confident that his leadership will be able to take Coherent to new heights, especially through the potential of AI. Additionally, COHR’s ​​stock price is up nearly 70% year-to-date and over 130% over the past nine months.

In addition to leadership changes, Coherent unveiled innovative products. On May 30, 2024, the company launched a new laser power sensor. PM10K+, designed to accelerate power output measurements by up to 500%. This new sensor is tailored for high-power applications, a growing segment of the industry.

Additionally, COHR has launched a new single mode. Polarization maintaining optical fiber. This industry first is designed to support high-power 1550nm amplifiers with average power exceeding 20 watts. These advancements highlight Coherent Corp’s continued commitment to innovation, addressing market needs, and positioning it as a leader in pushing the boundaries of laser technology capabilities.

How has COHR performed financially and what does the future hold for it?

at third quarter For the year ended March 31, 2024, COHR’s ​​revenue was $1.21 billion, exceeding Wall Street estimates of $1.17 billion by 3.5%. Revenues within the Networking segment reached $619 million, an increase of 18% sequentially and 12% year over year. This growth was driven by a sequential increase of approximately 80% in AI-related 800G Datacom transceiver revenue to approximately $200 million.

Additionally, COHR saw an 11% increase in orders compared to the previous year, pushing its backlog to more than $2.74 billion (up more than $100 million from the previous year). The company’s non-GAAP operating income and attributable net income reached $182.2 million and $113.2 million, respectively, representing sequential growth of 6.2% and 31%, respectively.

Additionally, the company’s third quarter non-GAAP EPS came in at $0.53, above the high end of guidance. Moreover, Coherent beat the consensus EPS estimate of $0.42 by 27.3%.

Looking ahead, COHR expects sequential revenue growth over the remaining quarters of fiscal 2024, driven by robust demand from AI and other lucrative end markets. Management also raised the lower end of its fiscal 2024 revenue outlook by $70 million. Annual sales are expected to range from $4.62 billion to $4.7 billion. Coherent also raised its non-GAAP EPS guidance to $1.73 from $1.56, up slightly from previous guidance of $1.30 to $1.70.

Additionally, analysts expect COHR’s ​​fourth quarter (ending June 2024) revenue to hit $1.28 billion, up 5.8% year-over-year. The company is estimated to report earnings per share of $0.60 for the quarter, a 46.5% improvement over the same period last year.

Is Coherent ready to capitalize on the AI ​​boom?

COHR is strategically positioned to capitalize on the burgeoning demand for AI-related technologies, primarily through enhancing its strong Datacom portfolio. JPMorgan analysts highlighted Coherent among companies that could benefit from the expanding AI market.

Coherent is strengthening its commitment to innovation at the intersection of networking, lasers, and advanced materials with specialized transceivers designed for AI and machine learning applications that support leading protocols such as Ethernet and NVIDIA’s NVLink.

In addition to its core strengths, the company is seeing significant momentum across its AI/ML portfolio. 800G transceiver sales increased nearly 80% sequentially, reaching nearly $200 million in the last reported quarter. Coherent is preparing for the commercial launch of its 1.6T transceiver later this year and anticipates continued growth in demand as AI technology advances.

Meanwhile, management is optimistic about the future and expects 50% of Datacom’s transceiver revenue in fiscal 2024 to be generated by AI-related revenue. This strong demand environment is expected to continue into the next fiscal year and beyond.

Given continued market strength and an expected CAGR of 21% for the Datacom transceiver market through 2028, Coherent remains well-positioned to capitalize on the growing demand for AI-based technologies and data center expansion.

conclusion

As Coherent continues to navigate the AI ​​boom, our ability to stay ahead of market trends and technological advancements will be critical. With new leadership and a strong R&D base, Coherent is well positioned to maintain momentum and achieve continued growth in the highly competitive technology industry.

Meanwhile, the global AI hardware market is expected to grow from $23.5 billion in 2023 to $84.9 billion in 2031. CAGR 15.5%. COHR is expected to benefit significantly from the rapidly growing AI market due to its expertise in laser and photonics technologies essential for AI hardware development and applications.

COHR’s ​​stock price has surged recently following the announcement of a new CEO, moving closer to optimistic expectations, but this optimism requires caution until more evidence of financial performance matches these lofty expectations. Investors should therefore remain vigilant and track the company’s progress in key markets and its ability to deliver on its growth promises.