Coherent's Q4 Datacenter Surge Confirms Demand But Valuation Risk Persists

What happened

Coherent's fiscal Q4 2026 datacenter revenue jumped 59% year over year to $1.62B, driving total revenue growth of 34% and underscoring continued AI infrastructure demand. The result is consistent with management's prior guidance of $1.91B-$2.05B total revenue and follows Q3's 41% datacenter growth, confirming the company is converting demand into shipments. Despite the strong top-line, the stock already trades at extremely high multiples (145x earnings and 49x EV/EBITDA as of early July) that bake in sustained growth and margin expansion. The master report highlights weak cash conversion, with nine-month operating cash flow of just $10.1M due to inventory and receivables buildup, which remains a critical risk. Thus, the news validates the demand thesis but does not resolve the valuation or execution concerns that underpin the WAIT rating.

Implication

If Coherent can sustain datacenter growth above 40% and demonstrate gross margin above 40% with improving cash conversion, the stock may re-rate higher; conversely, any deceleration in datacenter growth or margin pressure could trigger a sharp de-rating given the elevated expectations and crowded positioning.

Thesis delta

No material shift. The Q4 datacenter surge is within guided range and aligns with the existing base case, confirming demand but not altering the view that valuation already reflects much of the upside. Weak free cash flow and over-reliance on AI optics remain the primary constraints on the thesis.