Coherent Stock Falls 23% This Year. AI To The Rescue?
Coherent stock (NYSE:COHR), a prominent player in photonics technology, provides materials, photonics, and laser technologies to a variety of end markets, has decreased by nearly 23% year-to-date in 2025. This decline has been fueled by a mixed macroeconomic environment, somewhat cautious near-term forecasts from the company earlier this year, along with a broader market shift away from certain high-growth AI and tech stocks. Nevertheless, Coherent's fundamental performance has remained quite robust. In Q3, revenue (June fiscal year) increased by 24% year-over-year to $1.5 billion, and earnings surged to $0.91 per share on an adjusted basis, rising by $0.53 compared to last year. On a separate note, see – Should You Buy CRWV Stock After A Whopping 4x Rise?
Coherent has been placing an increasing emphasis on artificial intelligence (AI) products. The robust revenue performance over the previous quarter is primarily attributed to the strong demand for its AI/ML-related transceivers, with revenue from the 800G model, utilized for ultra-fast data transmission, skyrocketing nearly 80% sequentially to nearly $200 million. AI necessitates the transfer of large volumes of data with very low latency requirements, and Coherent is well-equipped as it boasts one of the most extensive portfolios of photonic technologies essential for high-speed optical data transmission.
Considering the valuation based on sales or profit per dollar, COHR stock appears slightly undervalued in comparison to the broader market. Coherent has a price-to-sales (P/S) ratio of 2.2 compared to a figure of 3.0 for the S&P 500. Moreover, the company's price-to-free cash flow (P/FCF) ratio stands at 18.9, whereas the S&P 500 is at 20.5. Coherent's growth metrics have also been strong. Coherent's Revenues have increased at an average rate of 22.1% over the past three years, while rising 21.7% from $4.6 billion to $5.6 billion in the previous 12 months. However, concerns regarding profitability remain.
Coherent's Operating Income over the last four quarters amounted to $467 million, indicating a disappointing Operating Margin of 8.4% (compared to 13.2% for the S&P 500). Coherent's Operating Cash Flow (OCF) during this period reached $666 million, resulting in a poor OCF Margin of 11.9% (compared to 14.9% for the S&P 500). Nevertheless, margins are expected to improve as high-margin products like AI-related data communication transceivers and advanced industrial lasers see increased demand. Adjusted gross margins have risen to 38.5% over the last quarter, reflecting an increase of around 490 basis points year-over-year, with the company aiming for 40% margins in the near future.
This, in tandem with a higher revenue base, could enhance operating margins as well. There are additional positive aspects for Coherent. Coherent's industrial laser division may experience greater traction, as the demand for advanced lasers that aid manufacturers in cutting, welding, and shaping materials with high precision grows as industries increasingly embrace automation. The company has a global manufacturing presence spread across approximately 60 locations in 14 countries, with about half of its manufacturing sites situated in the U.S. This should protect it from potential tariffs on imported semiconductors imposed by the Trump administration, unlike many fabless companies that depend on imports.
While there may be potential for COHR stock to rise, the Trefis Reinforced Value (RV) Portfolio has outperformed its all-cap stocks benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices), delivering strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks has provided a flexible approach to capitalize on favorable market conditions while minimizing losses when markets decline, as elaborated in RV Portfolio performance metrics.
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