Portfolio: Zacks Focus List

Coherent has become a picks-and-shovels play on AI infrastructure. Fiscal 2026 revenue reached a record $7.12 billion, up +23%, with fourth-quarter sales rising +34% year over year. Datacenter & Communications now supplies 80% of revenue after growing 60% in Q4 from huge demand growth for their high-speed transceivers, while non-GAAP gross margin expanded 215 basis points to 40.2%. Management guided Q1 FY2027 revenue to $2.2–2.4 billion and non-GAAP EPS to $1.85–2.05, and targets over $3 billion in quarterly revenue by fiscal year-end. That trajectory rests on hyperscaler AI capex, rising optical content per cluster, capacity additions, and a company-estimated $15 billion co-packaged-optics market by 2030.

The bear case is concentration. Industrial revenue fell 16% in Q4, leaving results dependent on AI capex, production ramps, and customer execution. Heavy capacity investment kept free cash flow negative in fiscal 2026, so the model requires sustained hyperscaler spending to convert growth into cash. Any AI capex digestion, 1.6T ramp delays, or trade restrictions would compress both growth and the multiple. Still, with datacenter demand accelerating sequentially and margins expanding, and with shares now sharply down -30% from the all-time highs, business fundamentals and valuation currently outweigh the industrial softness.