Coherent (COHR): A High-Beta Play on AI-Driven Data Center Expansion and Telecom Innovation

In the rapidly evolving landscape of AI-driven data centers and telecom infrastructure, Coherent (COHR) has emerged as a compelling high-beta play, leveraging cutting-edge photonics technology to capitalize on surging demand for high-speed optical components. With Susquehanna Financial Group’s recent reaffirmation of a “Buy” rating and a $120 price target [1], the stock has drawn renewed attention from investors seeking exposure to the next frontier of connectivity. This analysis examines COHR’s strategic positioning in high-growth optical and materials markets, its technological edge in 800G transceivers, and its competitive differentiation against peers like Palantir (PLTR) and Amplitude (AMPL).

Strategic Reorientation: Focusing on High-Margin Photonics

Coherent’s decision to divest its aerospace and defense business for $400 million in Q2 2025 [5] marked a pivotal shift toward higher-margin photonics markets. This move aligns with the company’s focus on AI-driven datacom and telecom sectors, where demand for optical interconnects is accelerating. The exit of non-core segments has streamlined operations, enabling COHR to reinvest in R&D and manufacturing capabilities. For instance, the company’s 6-inch indium phosphide (InP) wafer fabrication facility, which quadruples device output per wafer and reduces die costs by over 60% [1], underscores its commitment to scaling next-generation optical solutions.

The strategic partnership with Apple for VCSEL (vertical-cavity surface-emitting laser) products further cements COHR’s long-term growth prospects. This collaboration not only expands COHR’s U.S. manufacturing footprint but also positions it to benefit from Apple’s dominance in consumer electronics and AI-driven cloud infrastructure [5].

800G Transceiver Momentum: A Catalyst for AI Data Center Growth

At the heart of COHR’s growth story is its leadership in 800G transceivers, a critical component for AI data centers requiring ultra-high bandwidth. In September 2024, COHR announced the industry’s first L-band 800G ZR/ZR+ coherent pluggable transceiver in a QSFP-DD form factor [1]. This innovation, built on InP technology, doubles fiber capacity to 64 Tbps and eliminates the need for external amplifiers or filters, offering a cost and size advantage over silicon photonics-based alternatives [4].

The company’s Q3 FY2025 results highlight the commercial traction of these efforts: networking/datacom revenue surged to $897 million, a 24% year-over-year increase [1]. This momentum is driven by AI data center operators seeking to upgrade infrastructure to meet the computational demands of large language models and generative AI. Susquehanna analyst Christopher Rolland emphasized that COHR’s “strategic portfolio optimization and strength in telecom and industrial applications” justify the $120 price target, reflecting a 22.65% upside from its previous price [2].

Comparative Analysis: COHR vs. PLTR and AMPL

While COHR’s growth trajectory is robust, it differs from peers like Palantir (PLTR) and Amplitude (AMPL). PLTR, for example, has seen explosive adoption of its AI platforms, with Q2 FY2025 revenue hitting $1.004 billion, driven by U.S. government and commercial contracts [3]. Its near-term upside appears stronger, given its software-centric model and rapid scaling in defense and intelligence markets. However, COHR’s hardware-focused approach offers a more durable moat in the physical infrastructure layer of AI ecosystems.

Amplitude (AMPL), a leader in customer analytics, reported $320 million in ARR for Q1 2025, with a 12% year-over-year increase [5]. While AMPL’s SaaS model provides recurring revenue visibility, it lacks the capital intensity and technological differentiation of COHR’s photonics business. For investors seeking a value play in AI infrastructure, COHR’s hardware-centric strategy—coupled with its recent $1.43 billion Q2 revenue [1]—presents a compelling contrast to AMPL’s analytics-driven model.

Risks and Long-Term Value

Despite its strengths, COHR faces challenges, including significant debt and the absence of a clear economic moat [2]. However, its first-mover advantage in 800G transceivers and InP scaling mitigates these risks. Management’s guidance for 23% revenue growth and 191% non-GAAP EPS expansion in FY2025 [1] further underscores the company’s ability to deliver outsized returns in a capital-intensive sector.

For aggressive investors, COHR represents an underappreciated opportunity to bet on the confluence of AI data center expansion and telecom innovation. While PLTR and AMPL offer alternative routes to AI growth, COHR’s photonics expertise and strategic repositioning make it a high-conviction play for those willing to tolerate near-term volatility.

Source:
[1] Coherent, Inc. AI Datacom Growth and Indium Phosphide [https://www.monexa.ai/blog/coherent-inc-strategic-growth-in-ai-datacom-and-in-COHR-2025-07-10]
[2] Coherent Corp (COHR) Stock Forecast & Price Target [https://www.tipranks.com/stocks/cohr/forecast]
[3] Palantir Technologies Inc. [https://www.datainsightsmarket.com/companies/PLTR]
[4] Coherent Announces General Availability of 800G ZR/ZR+ [https://www.stocktitan.net/news/COHR/coherent-announces-general-availability-of-800g-zr-zr-qsfp-dd-g5jo8ljcbnx2.html]
[5] Coherent Posts Record Q4 Revenue [https://www.aol.com/finance/coherent-posts-record-q4-revenue-222316417.html]