Coherent Gets Analyst Upgrade, But Tariffs Could Cast Shadow Over Future Growth

Rosenblatt analyst Mike Genovese upgraded Coherent Corp (NYSE:COHR) from Neutral to Buy and lowered the price target from $115 to $85 on Friday.

Genovese is upbeat on sequential re-acceleration in AI transceivers by the second half of calendar 2025, driven by the Blackwell rollout and Coherent ZR transceiver demand for Data Center Interconnect (DCI) and telecom application that is very strong.

The analyst is bullish on the transceiver market through 2030 and increasingly views co-packaged optics (CPO) as more of an opportunity than a threat because of new products like Ultra-High-Power (UHP) lasers and Optical Circuit Switches (OCS).

Also Read: Coherent Stock Slides as It Plans to Offload Fabrication Site Near University of Illinois

Coherent is also making solid progress in commercializing 200G VCSELs and 100G and 200G EMLs.

Additional reasons for liking Coherent are the strong new CEO, Jim Anderson.

The stock has pulled back to its historical (pre-AI) valuation of under 13 times forward earnings. This likely signals that the buy side believes numbers need to come down due to demand destruction from the new tariffs, including 24% on Malaysian goods.

Genovese did not change estimates, primarily because of the very positive demand messages he heard from companies at the Optical Fiber Conference (OFC) this week. Another reason is that tariffs still seem to be a potentially moving target.

The analyst considers Coherent to be a long-term leader in AI Optics.

Coherent has increased 800G Datacom transceiver revenues every quarter for the last couple of years and now does ~$300 million per quarter in sales. This makes Coherent #2 in global market share after Innolight.

While sequential growth for Coherent in 800G has continued, it has slowed recently.

Investors are now openly discussing Microsoft Corp (NASDAQ:MSFT) delaying some new Data Center builds.

Nevertheless, the analyst expects Coherent’s and the overall market’s 800G Datacom transceiver sales to accelerate in the September and December quarters, driven by attachments to shipments of Blackwell GPUs ordered in the first half of 2025.

In the second quarter of 2025, Coherent’s Telecom revenues grew 11% year over year, following 17% year over year growth in the first quarter of 2025.

The company noted the strong ramp of new products and said it expects these products to continue to grow over the coming quarters.

Coherent management echoed these sentiments when Genovese met with them this week at OFC.

In addition, Ciena Corp (NYSE:CIEN) and Cisco Systems, Inc (NASDAQ:CSCO) said that the demand for Hyper-Scale DCI remains incredibly strong at OFC this week. However, any chatter investors hear about Microsoft, in particular, slowing down on some new Data Center investments.

At the OFC meeting, Coherent said it has the vendor’s most extensive portfolio of CPO components. The company also said CPO equipment is currently 2 to 4 times more expensive than transceiver equipment since it is new and esoteric. Coherent told the analyst it is participating in OCS deployments this year at a significant Hyper Scaler and is engaged in similar planning and bids with others.

According to the analyst’s checks, Lumentum Holdings Inc (NASDAQ:LITE) is still significantly ahead in EML capacity, but Coherent is finally getting close to ramping up its own EML production.

Genovese is confident that Coherent can expand its production of indium phosphide lasers, including EMLs and CWs, over time.

Coherent has manufacturing locations around the world, including Malaysia (24% tariff), China (54% tariff), other Asian countries (tariff rates mostly between Malaysia and China), and Europe (20% tariff).

Genovese projected third-quarter revenue of $1.44 billion and EPS of 85 cents.

Price Action: Coherent stock is down 9% at $49.06 at last check Friday.

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