Coherent Corp. Faces Slowing Growth in Datacenter Business, BofA Says

Coherent Corp.'s datacenter business is facing slowing growth, according to Bank of America. The company, specializing in materials, networking, and lasers, develops and markets engineered materials, optoelectronic components and devices, and lasers for various markets. Its Networking segment delivers differentiated components and subsystems for key end markets, while its Materials and Lasers segments include engineered materials, optoelectronic devices, and lasers for industrial, communications, electronics, and instrumentation markets.

Coherent Corp. (NYSE: COHR), a leading provider of engineered materials, optoelectronic components, and lasers, has seen its data center business decelerate, according to a recent downgrade from Bank of America Securities. The financial institution lowered its rating on Coherent from "Buy" to "Neutral" while raising its price target to $105.00 from $92.00 [1].

The slowdown in Coherent's data center business is evident in the company's quarterly growth rates. In the September quarter, growth in this segment slowed to 24% year-over-year, compared to the previous quarters' growth rates of 39%, 46%, and 58% [1]. This deceleration contrasts with the robust growth in AI capital expenditure and new product launches at AI accelerator vendors.

Despite the deceleration in data center growth, Coherent's overall revenue growth remains robust at 23.42%. However, the company is currently trading at a high EV/EBITDA multiple of 21.5x, which may indicate that the stock is overvalued at current levels [1]. Additionally, Coherent's gross margins have been modest, ranging between 38.1% and 38.5%, below the critical 40% baseline rate for price-to-earnings multiple expansion [1].

The sale of Coherent's aerospace and defense business for $400 million is expected to create a revenue gap of approximately $170 million in fiscal year 2026. While a new Apple contract is expected to contribute to the company's revenue in the second half of 2026, the impact on the bottom line is not expected until 2027 [1, 2].

BofA raised its estimates for Coherent by 5% for calendar year 2026 and 12% for 2027, primarily due to lower interest expenses. The company's financial flexibility remains strong, with a current ratio of 2.19, suggesting adequate liquidity during this transition period [1].

In other developments, Coherent's stock experienced a significant drop in premarket trading on August 14, 2025, falling over 19% [2]. Despite this, the company reported strong fourth-quarter fiscal 2025 results, with revenue and earnings per share exceeding consensus estimates [2].

Coherent's strategic focus on AI-driven optical networking and its innovative next-generation Optical Circuit Switch (OCS) platform position it as a key player in the rapidly evolving AI infrastructure market. The company's operational discipline and cost leadership are expected to drive long-term growth and shareholder value [3].

References:
[1] https://www.investing.com/news/analyst-ratings/coherent-stock-rating-downgraded-to-neutral-by-bofa-on-slowing-growth-93CH-4192699
[2] https://newsable.asianetnews.com/markets/why-did-coherent-stock-tumble-19-pre-market-today-articleshow-4wy9bhg
[3] https://www.ainvest.com/news/coherent-corp-strategic-position-optical-networking-revolution-high-conviction-buy-2025-2508/