Is Coherent (COHR) Poised for Sustained Growth Amid AI and Semiconductor Tailwinds?

The semiconductor industry is undergoing a transformative phase, driven by the insatiable demand for AI infrastructure, electric vehicles, and industrial automation. At the forefront of this evolution is Coherent (COHR), a company leveraging its 300mm silicon carbide (SiC) platform to address critical challenges in thermal efficiency and power density. As market insights show, the global semiconductor fabrication market is expanding at a projected 12% CAGR from 2025 to 2032, Coherent's strategic innovations and market positioning warrant a closer examination of its risk-reward profile.

300mm SiC: A Technological Leap for AI and Beyond

Coherent's transition from 200mm to 300mm SiC substrates represents a pivotal advancement in semiconductor materials. The 300mm platform is engineered to deliver low resistivity, low defect density, and high homogeneity, enabling superior thermal management and energy efficiency according to Coherent. These attributes are critical for AI datacenters, where rising thermal loads and power demands threaten to bottleneck performance. By increasing device yields per wafer and reducing cost per chip, Coherent's 300mm SiC substrates not only enhance profitability but also support a broader range of applications, including AR/VR devices, electric vehicles, and industrial automation as reported by Power Electronics News.

The market adoption of this platform is accelerating. For instance, Coherent's SiC substrates are already being integrated into high-frequency power electronics and optical waveguides, enabling thinner, more efficient AR/VR modules according to Coherent. Meanwhile, the shift to 300mm wafers aligns with the silicon carbide market's projected 6.2% CAGR from 2025 to 2032 as market analysis indicates, underscoring the technology's scalability and relevance in a decarbonizing economy.

AI Infrastructure Positioning: A Strategic Sweet Spot

Coherent's Networking segment, which accounts for 61.8% of total revenue in Q4 2025, has become a cornerstone of its AI infrastructure strategy as detailed in industry analysis. The segment's 49% year-over-year growth in 2025 highlights robust demand for high-speed optical transceivers and optical circuit switches (OCS), which are essential for hyperscale datacenters. According to earnings data, by expanding its indium phosphide production and OCS systems, Coherent is directly addressing the bottlenecks in data transmission and compute efficiency.

The company's market share in the AI-driven semiconductor sector is also growing. With a 14.19% share in 2025-surpassing the industry average of 10.25% for competitors-Coherent's technological edge in optical components and laser systems positions it as a key enabler of AI infrastructure as market data shows. This is further reinforced by its global footprint, with operations in 130 locations, ensuring agility in meeting diverse market demands as reported in competitor analysis.

Risk-Reward Analysis: Balancing Optimism and Caution

While Coherent's innovations and market positioning are compelling, its risk-reward profile remains nuanced. The stock has surged 81.27% over 90 days, with a three-year total shareholder return of 383.24% according to financial data, reflecting strong investor confidence. However, analysts remain divided on its valuation. Price targets range from $85 to $220, with a consensus fair value of $113.368, suggesting the stock is currently overvalued by over 5% relative to these estimates as market analysis indicates.

The primary risks include heightened competition from Asian manufacturers, lumpy demand from hyperscalers and Apple, and the capital intensity of scaling 300mm SiC production as market reports show. For example, Coherent's Q1 2026 results showed a 17% year-over-year revenue increase to $1.58 billion, driven by AI datacenters and communications as disclosed in earnings transcripts, but sustaining this growth will require continued investment in R&D and manufacturing.

Financial projections, however, remain optimistic. Coherent is expected to achieve $7.7 billion in revenue and $732 million in earnings by 2028 as projected by financial analysts, implying a 9.8% annual revenue growth. This trajectory hinges on the successful commercialization of its 300mm SiC platform and the broader adoption of AI infrastructure.

Conclusion: A High-Conviction Play Amid Uncertainties

Coherent's 300mm SiC innovation and AI infrastructure positioning present a compelling case for long-term growth. The company's ability to address thermal efficiency challenges in datacenters, coupled with its expanding market share in optical networking, aligns with secular trends in AI and decarbonization. However, the stock's current valuation and operational risks-such as competitive pressures and capital intensity-demand a cautious approach. For investors with a high-risk tolerance and a long-term horizon, Coherent's strategic bets on SiC and AI infrastructure could yield substantial rewards, provided it executes its roadmap effectively.