Thesis. Coherent owns the scarce laser layer and proved it again — Q4 revenue up 34% with non-GAAP gross margin expanding 215 basis points to 40.2%, an order book stretching into calendar 2028, and NVIDIA's $2B behind it. The complication is that Broadcom is now building its own EML and CW laser capacity, and the stock fell on a beat.
Reviewed 11 September 2026, after Q4 FY2026 results. Next review after Q1 FY2027 earnings on 4 November 2026.
What it does
Coherent builds optical transceivers — the light engines that move data between racks in an AI cluster. 800G is the volume product today, 1.6T is ramping. Datacom and communications is now around 75% of revenue. There's also a legacy industrial and materials laser business, now a shrinking share.
The part that matters competitively is that it's vertically integrated. Coherent grows its own indium phosphide laser chips, on the industry's first 6-inch production line in Sherman, Texas.
A 6-inch wafer yields more than four times the chips of a 4-inch wafer at less than half the cost per chip. In a business where margins are thin and everyone buys the same way, owning the cheapest fab is the moat.
Bull case
- Q4 FY2026, reported 12 August: revenue $2.05B, up 34% — and up 42% pro forma once the aerospace and defence divestiture is adjusted out
- The margin story is the proof. GAAP gross margin 38.5% (+277bps), non-GAAP 40.2% (+215bps). On a physical manufactured product, that is hard-won
- Earnings are compounding faster than sales. Non-GAAP EPS $1.74, up $0.74 on the year. GAAP EPS $1.19, a $2.02 swing. For FY26 as a whole, non-GAAP EPS grew at more than twice the rate of revenue
- Unusual visibility for a component supplier. The order book extends into calendar 2028, with a multi-year NVIDIA supply agreement running through 2030
- NVIDIA put roughly $2B in in March 2026 — part of about $4B split with Lumentum — explicitly to accelerate indium phosphide capacity
- The 1.6T cycle is starting while 800G is still growing through CY2026
- Optical circuit switching is real revenue, with seven customers shipping and Google's Ironwood architecture validating the category
- Western supply chain is an advantage against Chinese suppliers as sourcing gets scrutinised
Bear case
- Optics is brutally cyclical, and this is the good half of the cycle. The industry has a long history of boom followed by bust
- Broadcom is moving in. It disclosed in September that it is investing in EMLs and CW lasers for its own demand — expanding directly into the layer Coherent and Lumentum own
- Innolight dominates merchant 400G and 800G volume, which means permanent price pressure from below
- Co-packaged optics is the structural risk. If optics moves onto the switch ASIC, the pluggable transceiver market shrinks late-decade
- Merger debt is still on the balance sheet, which amplifies any downturn
- Hyperscaler orders are lumpy by nature, so a quarter can miss for reasons that say nothing about demand
- The market is already sceptical. The stock fell 4% after hours on a beat with above-consensus guidance, having dropped 12% in pre-earnings de-risking
Major customers
- NVIDIA — invested roughly $2B in March 2026 to accelerate indium phosphide capacity, and is a named collaborator on silicon photonics for the Spectrum-X platform. A customer that buys equity to guarantee supply is the strongest demand signal there is
- Hyperscalers — buying transceivers directly and through switch vendors. Datacentre is now 75% of revenue, up from 41% pro forma a year earlier
- Optical circuit switch customers — seven named as shipping, with Google's Ironwood architecture validating the category
- Cisco, Ciena and other systems vendors — components and transceivers
- Industrial and aerospace — the legacy laser business, now a shrinking share
Read-through. NVDA platform roadmaps are the single most important external variable here — Coherent's demand curve is drawn by NVIDIA's product cadence.
Downstream, Coherent supplies CIEN, ANET and the module makers, so its capacity commentary leads their product availability. It sells laser chips to TSEM for silicon photonics work. FN manufactures for Coherent, so Fabrinet's volumes partly reflect Coherent's shipments.
It competes with AVGO and Mitsubishi in EML supply, and sits alongside LITE as one of the two names that own the laser bottleneck. TSM naming lasers as a co-packaged optics bottleneck confirms the scarcity from the foundry side.
The tell: Broadcom investing to build its own lasers confirms the shortage before it threatens the position. Watch which of those two it turns out to be.
What would change the view
- Gross margin trend — the 6-inch indium phosphide line either proves out in the margin or it doesn't
- 1.6T program wins against Innolight and Lumentum
- Debt paydown from the merger
- Co-packaged optics adoption pace, and whether it expands or shrinks the addressable market
- Whether Broadcom's in-house laser capacity starts to show up as competition rather than confirmation
- Order book duration — it runs into 2028 today; any shortening is the early warning
Update log
- 11 Sep 2026 — Reviewed. Broadcom's EML and CW laser investment added to the bear case as a new competitor, and TSMC naming lasers a co-packaged optics bottleneck noted as confirmation of scarcity. Verdict held.
- 12 Aug 2026 — Q4 FY2026 results: revenue $2.05B (+34%, +42% pro forma), non-GAAP gross margin 40.2% (+215bps), non-GAAP EPS $1.74. Beat with above-consensus guidance; stock fell 4% after hours on a name that had already run.
- 25 Jul 2026 — Full review.
Research and education only — not investment advice.
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