Coherent: Datacom Tailwinds, Optical Breakout

We initiate coverage on COHR with a Strong Buy rating and $131 price target. As a key designer and

manufacturer of advanced lasers and photonic solutions for industrial, datacom, and scientific end markets worldwide, COHR is set to experience a structural step change. AI datacom demand is fueling a perfect storm with a reinvigorated module portfolio and manufacturing innovations. Continued momentum in 800G datacom shipments (+54% y/y last quarter) and a ramp to 1.6T modules creates a pathway for significant outperformance relative to consensus estimates, particularly with the 6-inch indium phosphide line approaching that will triple component output and compress costs. We have conviction on both the size and timing of deployments, with OEM customers already pushing COHR’s orders ahead of hyperscale buildouts and initial Optical Circuit Switch revenues arriving in FY26. COHR’s topline is spinning faster than Street expectations. Our consensus-busting model delivers 12% revenue growth in FY26E to $6.47 bn, not just driven by AI datacom, but also by early share gains in telco verticals as capacity constraints ease. A robust backlog and visibility for GM expansion (+490 bps y/y) as well as accelerated deleverage (2.24× net debt/EBITDA) justify our 3.6× EV/Sales target multiple, which is conservative versus peers given the increasing cadence around optical demand. The China-exposed industrial segments and order timing could cause lumpy execution near term, but the underlying secular tailwinds remain intact. With COHR trading at a wide discount to its growth-adjusted valuation, we view the R/R as asymmetrically skewed in favor of patient