Coherent Stock Slumps. Will AI Spark A Comeback?

Coherent stock (NYSE:COHR), a leader in photonics technology, supplies materials, photonics, and laser technologies to a diverse range of end markets, declined by close to 23% year-to-date in 2025. The sell-off has been driven by a mixed macro picture, somewhat cautious near-term guidance from the company earlier this year, and a broader market rotation away from some high-growth AI and tech stocks. That said, Coherent’s fundamental performance has been pretty solid. While Q3 revenue (June fiscal year) was up 24% year-over-year to $1.5 billion, earnings improved sharply to $0.91 per share on an adjusted basis, up $0.53 compared to last year.

Coherent has been increasingly focused on artificial intelligence (AI) products. Revenue outperformance over the last quarter is largely attributed to strong demand for its AI/ML-related transceivers, with revenue for the 800G model used for ultra-fast data transmission soaring nearly 80% sequentially to almost $200 million. AI requires the transfer of a massive amounts of data at very low latency needs, and Coherent is well positioned, given that it has one of the broadest portfolios of photonic technologies required for high-speed optical data transmission.

Going by what you pay per dollar of sales or profit, COHR stock looks slightly cheap compared to the broader market. Coherent has a price-to-sales (P/S) ratio of 2.2 vs. a figure of 3.0 for the S&P 500. Additionally, the company’s price-to-free cash flow (P/FCF) ratio is 18.9 compared to 20.5 for S&P 500. Coherent’s growth has also been solid. Coherent’s Revenues grew at an average rate of 22.1% over the last three years, while rising 21.7% from $4.6 billion to $5.6 billion in the last 12 months. That said, profitability is a concern.

Coherent’s Operating Income over the last four quarters was $467 million, which represents a poor Operating Margin of 8.4% (compared to 13.2% for S&P 500). Coherent’s Operating Cash Flow (OCF) over this period was $666 million, pointing to a poor OCF Margin of 11.9% (vs. 14.9% for S&P 500). That said, margins should get better, as high-margin products such as AI related data com transceivers and advanced industrial lasers see a higher uptake. Adjusted gross margins have expanded to 38.5% over the last quarter, an increase of about 490 basis points year-over-year and the company is targeting 40% margins in the near-term.

This, coupled with a higher revenue base, could help operating margins pick up as well. There are other positives for Coherent. Coherent’s industrial laser business could also see greater traction, as demand for high-tech lasers that help manufacturers cut, weld, and shape materials with great accuracy expands as industries increasingly adopt automation. The company has a global manufacturing footprint that spans roughly 60 different locations across 14 countries, with roughly half of its manufacturing sites located in the U.S. This should insulate it from potential tariffs on imported semiconductors by the Trump administration, unlike many fabless players who are reliant on imports.

While there might be some upside to COHR stock, the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.

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