TenQ

The Coherent story

Coherent makes photonic components for datacenters, communications and industry, with the central question whether NVIDIA's optical networking commitment can translate into cash generation as manufacturing expands.

Coherent stock reportTenQ Score 9/36 · every chart and check from its filings
  • $232.90share price, last close
  • $45.6Bmarket value
  • 9/36TenQ Score checks passed

The story in brief

  • NVIDIA anchors expansion. The March 2026 agreement combines a multi-billion-dollar purchase commitment with NVIDIA's $2 billion equity investment to support optical technology development and manufacturing.
  • Datacenters drive growth. Datacenter & Communications revenue reached $1,615.0 million in the quarter to June 2026, compared with $1,018.3 million a year earlier, while Industrial revenue declined.
  • Cash trails earnings. In fiscal 2026, operating cash flow was $79.5 million against $1,102.9 million invested in property, plant and equipment.

What drives the business

  • Coherent's multiyear, nonexclusive NVIDIA agreement includes a multi-billion-dollar purchase commitment and future access and capacity rights for advanced laser and optical networking products.
  • NVIDIA's separate $2 billion equity investment supports research, capacity and operations as Coherent expands its U.S. manufacturing capabilities.
  • The transition from copper to optical connectivity in AI datacenters drives demand for Coherent's transceivers, while ZR/ZR+ transceivers and traditional telecom transport products support communications demand.
  • Datacenter & Communications revenue increased to $5,274.6 million in fiscal 2026 from $3,755.2 million in fiscal 2025, and Coherent is expanding indium phosphide capacity in Sherman, Texas, to address demand and an industry shortage.
  • Industrial revenue declined despite strong semiconductor capital equipment demand, while divestitures of the aerospace and defense and Munich tools businesses contributed a $124.1 million gain on business disposals in fiscal 2026.

What the price assumes

The reverse DCF cannot measure the growth implied by $338.36 per share because free cash flow of -$1.0 billion over the last twelve months leaves no positive cash flow base, making future profit conversion central to the valuation.

The price represents 82.1x earnings and 9.3x revenue, against revenue growth of 22.5% over the last twelve months and an annual pace of 11.3% over the last three years.

TenQ's Value checks pass 0 of 6, with free cash flow yield of -1.5% falling short of its above 3% threshold.

What could change the story

  • AI infrastructure spending may not sustain recent demand, and customer resource constraints or defaults could weaken orders as Coherent expands production.
  • Manufacturing qualification delays, contract manufacturer dependence and supply constraints could raise costs or leave facilities underused, while research spending may not produce commercially successful products.
  • Cash generation remains a constraint despite lower long-term debt, which fell to $3,214.3 million from $3,498.6 million in fiscal 2026, and TenQ's self-funding check fails.
  • Equity financing strengthens the balance sheet but dilutes ownership, with shares increasing 42.0% over three years and TenQ's per-share growth check failing.
  • The Lasers reporting unit carried approximately $3.1 billion of goodwill at June 2026, with its estimated value only approximately 8% above carrying value in the April 2026 impairment assessment.

What to watch next

  • For the first quarter of fiscal 2027, Coherent expects revenue between $2.2 billion and $2.4 billion, non-GAAP gross margin between 39.5% and 41.5%, and non-GAAP earnings per share between $1.85 and $2.05.
  • Subsequent releases will show whether operating cash flow improves relative to manufacturing spending and whether datacenter growth continues alongside the Industrial decline.
  • Progress on Sherman capacity, manufacturing qualifications and the NVIDIA agreement will help show whether expanded production is meeting demand without weakening margins.

Sources

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