Is Coherent (COHR) Positioned to Outperform in the AI Infrastructure Boom?

The global AI infrastructure market is undergoing a seismic shift, driven by the insatiable demand for high-performance computing (HPC), advanced photonics, and scalable datacenter solutions. Amid this transformation, Coherent Inc. (COHR) has emerged as a critical player, leveraging its expertise in optical technologies and materials science to align with next-generation AI requirements. This analysis evaluates whether Coherent is uniquely positioned to outperform in this high-growth sector, focusing on its product portfolio, scalability advantages, and competitive differentiation.

Strategic Product Alignment with Next-Gen AI Demand

Coherent's product portfolio is deeply attuned to the evolving needs of AI infrastructure. The company's Networking division, a cornerstone of its AI strategy, is projected to grow by 48% in 2025, fueled by demand for high-speed optical transceivers such as 800G and 1.6T modules. These components are essential for hyperscalers and datacenters upgrading their networks to handle AI workloads, which require unprecedented data throughput and low-latency connectivity.

Beyond optical transceivers, Coherent has expanded its silicon carbide (SiC) platform to 300mm wafers, a critical advancement for thermal management in AI datacenters. SiC's superior thermal conductivity and electrical performance enable higher power density and faster switching, addressing the escalating heat and energy demands of AI chips like NVIDIA's H100 and AMD's MI300X. This innovation positions Coherent to benefit from the broader trend of energy-efficient materials in HPC environments.

Additionally, Coherent's production of 6-inch indium phosphide (InP) wafers has improved significantly, with higher yields supporting its growing demand for photonic components in AI infrastructure. InP is a key material for high-speed optical interconnects, which are indispensable for training large language models and other compute-intensive AI tasks. By vertically integrating these materials, Coherent reduces supply chain bottlenecks and ensures a steady supply of critical components for its customers.

Scalability Advantages: Manufacturing and Supply Chain Resilience

Scalability is a defining challenge in the AI infrastructure boom, and Coherent's strategic investments in manufacturing capacity and process optimization provide a competitive edge. The company has doubled its internal InP production capacity in Sherman, Texas, and Tarfala, Sweden, aiming to meet the surging demand for photonic components. This expansion is expected to yield a 2x increase in InP wafer output within a year, directly supporting the scaling of AI datacenters.

The transition to 300mm SiC wafers further underscores Coherent's scalability. By adopting larger wafers, the company reduces the cost per chip while enhancing thermal efficiency, a critical factor for hyperscalers managing energy costs. This shift also aligns with industry trends toward wafer-level integration, which minimizes the complexity and cost of manufacturing advanced materials.

Coherent's supply chain strategies emphasize vertical integration and rapid adoption of larger wafer sizes, which improve cost efficiencies and supply resiliency. These measures are particularly valuable in a market where supply chain disruptions and material shortages have historically constrained growth. By proactively addressing these challenges, Coherent ensures its ability to scale alongside the AI infrastructure market.

Competitive Positioning: Photonics vs. Liquid Cooling

While Coherent is not a direct competitor to liquid cooling specialists like Vertiv and CoolIT Systems, its focus on photonics and materials science offers a complementary approach to AI infrastructure. Vertiv and CoolIT excel in liquid cooling solutions, such as direct-to-chip and immersion cooling, which are critical for managing the thermal loads of AI workloads. However, Coherent's strengths lie in enabling the high-speed data transmission and energy-efficient materials that underpin AI compute architectures.

For instance, Coherent's 1.6T 2D VCSEL arrays and 100G QSFP28-DCO ZR transceivers provide the optical interconnects necessary for hyperscalers to deploy exascale computing. These innovations are less about cooling and more about ensuring the datacenter's "nervous system" can handle the volume and velocity of AI-driven traffic. In contrast, Vertiv's hybrid cooling systems and CoolIT's modular DCLC platforms address thermal management but do not directly contribute to the photonic layer of AI infrastructure.

Analysts highlight that Coherent's position in the photonics value chain is a key differentiator. As AI workloads grow, the demand for optical components will outpace that of cooling solutions, creating a unique growth trajectory for companies like Coherent. This is further supported by the projected $250 billion AI infrastructure market in 2025, where photonics and materials will play an increasingly central role.

Investment Outlook: Balancing Growth and Risks

Despite its strengths, Coherent faces challenges, including capital intensity and competition from established players in adjacent markets. However, its strategic alignment with AI infrastructure trends-such as the shift to 800G/1.6T transceivers and 300mm SiC-positions it to capture significant market share. Analysts have raised their price targets for COHR, with Fair Value estimates climbing from $121 to $161 per share, reflecting confidence in its long-term growth.

The company's Q1 FY2026 results underscore this optimism: Datacenter & Communications revenue reached $1.09 billion, a 26% year-over-year increase driven by AI-related demand. Such performance validates Coherent's ability to monetize its technological advancements in a rapidly expanding market.

Conclusion

Coherent's strategic product alignment with next-gen AI demand-through high-speed optical transceivers, advanced materials, and scalable manufacturing-positions it as a key enabler of the AI infrastructure boom. While it may not compete directly with liquid cooling leaders like Vertiv or CoolIT, its focus on photonics and energy-efficient materials addresses a critical and underserved segment of the market. As AI workloads continue to drive demand for high-performance, scalable solutions, Coherent's innovations in optical networking and materials science are likely to outperform in the long term.