Is Coherent Corp. (COHR) a Hidden AI Stock to Buy Right Now?

The AI revolution is reshaping industries, driving demand for advanced hardware capable of supporting data-intensive applications. While tech giants like NVIDIA and AMD dominate headlines, a lesser-known player—Coherent Corp. (COHR)—is quietly capitalizing on the AI boom through its critical role in supplying photonics and optical components to the backbone of AI infrastructure. Let’s dissect whether Coherent is a hidden AI stock worth buying now.

The AI Hardware Supply Chain: Coherent’s Hidden Strength

Coherent’s Q2 FY2025 results underscore its position as a key supplier to the AI hardware ecosystem. The company reported record revenue of $1.43 billion, a 27% year-over-year surge, with AI-driven Data Center demand cited as a primary growth driver. This segment’s expansion, combined with Telecom business gains, has propelled Coherent into a leadership role in high-margin photonics.

Financial Fortitude: Margins, Debt Reduction, and Cash Generation

Beyond revenue growth, Coherent’s profitability metrics are equally compelling:
- GAAP Gross Margin expanded to 35.5% (up 452 bps Y/Y), while Non-GAAP Gross Margin rose to 38.2% (up 363 bps Y/Y).
- Non-GAAP EPS jumped to $0.95, a 77% increase from the prior year.

These improvements reflect operational efficiency and a strategic shift toward high-margin AI-related products. Additionally, the company reduced debt by $132 million in Q2, signaling robust cash flow and financial flexibility.

Product Innovation: Powering AI Infrastructure

Coherent’s growth isn’t accidental. Its product roadmap targets core AI infrastructure needs:
1. Optical Switching Solutions: These devices manage data traffic in Data Centers, enabling scalable and energy-efficient networks—a must for AI workloads.
2. Fiber Lasers: Used in precision manufacturing for semiconductors and advanced materials, these lasers support the production of next-gen AI chips and sensors.
3. Indium Phosphide (InP) Production: Funded in part by the CHIPS Act, InP is a semiconductor material critical for high-speed optical components in AI systems.

Strategic Leverage: CHIPS Act and Forward Guidance

The CHIPS Act funding secures Coherent’s dominance in InP, a material increasingly vital for AI’s photonics requirements. Management also provided Q3 FY2025 guidance of $1.39–$1.48 billion in revenue, with gross margins expected to remain robust at 37–39%. This suggests sustained demand and pricing power in AI-driven sectors.

Why the “Hidden” Label?

Coherent isn’t a household name in AI discussions because its role is indirect but indispensable. It doesn’t build GPUs or neural networks but supplies the optical and laser technologies that enable high-speed data transmission and processing in Data Centers. This niche position avoids direct competition with tech giants while benefiting from their growth.

Risks to Consider

• AI Demand Volatility: Overreliance on Data Center spending could expose Coherent to cyclical slowdowns.
• Supply Chain Challenges: Delays in InP production or geopolitical tensions (e.g., US-China tech rivalry) might disrupt operations.

Conclusion: A Compelling Case for Long-Term Investors

Coherent Corp. is a high-potential hidden gem in the AI supply chain. With 27% YoY revenue growth, margin expansions, and strategic investments in AI-critical technologies, the company is well-positioned to capitalize on the $1.2 trillion AI market forecast by 2030.

The absence of explicit AI partnerships doesn’t weaken its prospects; its products are embedded in the infrastructure that makes AI possible. With a low debt-to-equity ratio and CHIPS Act support, Coherent’s financial health further mitigates risks.

For investors seeking exposure to AI’s backend without the volatility of direct competitors, Coherent offers a stable, high-margin entry point. While not a speculative play, its fundamentals suggest steady growth in an industry with no near-term slowdown in sight.

In short, Coherent Corp. isn’t just a beneficiary of AI—it’s a foundational pillar of its infrastructure. For the patient investor, this could be a rare chance to buy into a rising tide at a reasonable valuation.