Coherent's AI Datacenter Revenue Hits 72% of Sales, Reinforcing Growth but Highlighting Execution Hurdles

What happened

Coherent's datacenter revenue surged to 72% of total sales, driven by AI infrastructure demand as highlighted in a recent Zacks article. This aligns with the DeepValue report's finding that Datacenter & Communications is now the earnings engine, contributing $1.2 billion in Q2 FY26. The growth is fueled by transceiver demand and InP production expansion, supported by NVIDIA's $2 billion investment for capacity ramp. However, the report cautions that at a stock price of $238.2, valuation already prices in sustained growth, with high EV/EBITDA of 36.6 and execution risks like InP yield stalls. Despite the positive news, the investment thesis remains unchanged, emphasizing the need for proof points in the next 3-6 months.

Implication

The datacenter revenue surge confirms Coherent's positioning in AI optics but underscores dependence on unproven capacity expansion. Success hinges on doubling InP output as planned, which requires validation in upcoming filings and operational updates. NVIDIA's partnership provides funding but includes amendment risks that could impact utilization if demand falters. Current high multiples assume flawless execution, making the stock vulnerable to any delays or softening in AI capex cycles. Therefore, waiting for concrete evidence of throughput improvements and sustained demand visibility is prudent before considering new positions.

Thesis delta

The news article reinforces the growth narrative but does not alter the fundamental thesis that execution and visibility are critical. The 'WAIT' rating remains justified as valuation concerns persist, and investors should monitor upcoming quarters for proof of InP ramp and NVIDIA commitment conversion. No shift in investment stance is warranted until these milestones are demonstrated.