Is Coherent (COHR) Still a Buy Despite a Surging Stock Price?

The question of whether Coherent (COHR) remains a compelling investment despite its recent valuation surge hinges on a nuanced analysis of its financial performance, strategic positioning in the AI-driven photonics sector, and the broader market dynamics shaping this high-growth industry. While the stock's price-to-earnings (P/E) ratio of 52.92 in 2025 appears lofty, a deeper examination of its price-to-sales (P/S) and price-to-book (P/B) ratios, alongside sector benchmarks, reveals a more balanced picture.

Valuation Metrics: A Tale of Contrasts

Coherent's 2025 P/S ratio of 5.07 and P/B ratio of 5.04 stand in stark contrast to the valuation multiples of its peers in the AI-driven photonics sector. For instance, NVIDIA, a dominant player in AI and photonics, trades at a P/S ratio of 27.25 and a P/B ratio of 44.41, suggesting that COHR is significantly undervalued relative to sector leaders. This discrepancy is even more pronounced when considering the broader AI sector's median revenue multiples of 25–30x enterprise value according to market analysis, which reflect investor optimism about AI's transformative potential. Coherent's lower multiples imply that the market may not yet be fully pricing in its long-term growth prospects, particularly given its pivotal role in enabling AI infrastructure through co-packaged optics (CPO) and high-speed optical transceivers as reported in market research.

However, Coherent's financials present a mixed picture. While revenue surged 23.42% year-on-year to $5.81 billion in 2025, the company reported a net loss of $80.56 million, a 71.18% decline from 2024. A profit margin of 4.13% and return on assets (ttm) of 2.66% further underscore its current unprofitability. These metrics raise concerns about near-term execution risks, particularly as the company invests heavily in R&D and capital expenditures to scale its AI photonics offerings.

Strategic Positioning in a High-Growth Sector

Coherent's competitive advantage lies in its deep integration into the AI ecosystem. The company has partnered with NVIDIA to develop CPO-enabled silicon photonics networking switches, a critical technology for hyperscalers seeking to meet the insatiable demand for AI-driven workloads. Additionally, Coherent's supply of vertical-cavity surface-emitting lasers (VCSELs) for Apple's Face ID technology ensures a stable revenue stream, even as it pivots toward higher-growth AI applications.

The global silicon photonics market, valued at $2.6 billion in 2025, is projected to grow at a 22.90% CAGR to reach $16.9 billion by 2034, driven by edge computing and AI's need for energy-efficient data processing. Coherent's innovations, such as 2D VCSEL arrays for power-efficient datacenter interconnects and 1.6T transceivers, position it to capture a significant share of this expansion. Moreover, the company's vertically integrated manufacturing capabilities and U.S. production footprint provide a cost and quality edge in a sector where supply chain reliability is paramount.

Sector Dynamics and Long-Term Prospects

The AI-driven photonics sector is characterized by high valuation multiples, reflecting its disruptive potential. For example, the broader AI sector's P/B ratio of 10.73 and NVIDIA's 44.41 P/B indicate that investors are willing to pay premiums for companies with scalable, high-margin technologies. Coherent's P/B of 5.04, while lower than these benchmarks, is still elevated relative to traditional technology firms with an average P/B of 2.2x in 2025, suggesting that the market acknowledges its growth trajectory.

Critically, Coherent's revenue is expected to grow to $6.7 billion by fiscal 2026, driven by AI infrastructure demand and its Networking segment's 45% year-on-year revenue increase in Q3 2025. This growth, coupled with a gross margin of 38.5%, demonstrates the company's ability to scale efficiently. Analysts project a drop in the P/E ratio to 36.94 in 2026 according to financial data, implying that earnings could catch up with revenue growth, narrowing the valuation gap.

Risks and Considerations

Despite its strengths, Coherent faces headwinds. Its current unprofitability and reliance on capital-intensive R&D could strain cash reserves, particularly if AI adoption slows or supply chain disruptions persist. Additionally, competition from firms like Lumentum and II-VI Inc. in the optical components market could pressure margins. However, Coherent's first-mover advantage in CPO and its partnerships with industry leaders like NVIDIA and Apple provide a moat that is difficult to replicate.

Conclusion: A Buy for the Long-Term

Coherent's stock may appear expensive at first glance, but its valuation is justified by its leadership in a sector poised for explosive growth. The company's P/S and P/B ratios are significantly lower than those of sector peers, offering a margin of safety for investors willing to bet on its ability to monetize AI-driven photonics. While near-term profitability remains a concern, the long-term fundamentals-robust revenue growth, strategic partnerships, and a high-margin product roadmap-suggest that COHR is still a compelling buy for those with a multi-year horizon.