Coherent's Optical Inflection: PhotonLink, 6-Inch InP, and the $3 Billion Quarter Ahead
Record revenue and a 59% EPS jump collide with a 32% drawdown — a demand story that is refusing to soften
COHR · Earnings Call · 2026-08-12
Coherent Corp. turned in an "outstanding year," in CEO Jim Anderson's words — and the numbers back him. On a pro forma basis, fiscal 26 revenue rose 28% to a record $7 billion, and non-GAAP EPS grew 59%, more than twice the rate of revenue growth. A single quarter captures the momentum: Q4 pro forma revenue of $2.05 billion grew 42% year over year and 14% sequentially, and non-GAAP EPS jumped 74% YoY. Management now expects its first $3 billion revenue quarter by the end of fiscal 27 — a milestone the stock has yet to embrace.
The mechanics show up in the fundamentals. Gross margin expanded to 39.4% for the year (+152 bps from 2025), operating margin rose roughly 300 bps to 20.5%, and total revenue crossed $7 billion for the first time in company history, even as Q4 capital expenditure hit $556 million to fund the AI data center ramp. The price of that investment shows up further down the P&L: free cash flow swung to -$433M — a deliberate trade-off management defends given an ~18-month payback on data center capex.AI runs on compute, but it scales on optical connectivity. Coherent is at the center of an extraordinary expansion in optical networking infrastructure.
The 6-Inch InP Engine
The binding constraint — and the linchpin of the growth story — is indium phosphide. Anderson described the ramp as ahead of plan: internal InP output capacity doubling year over year by the end of the current quarter, one quarter early, with a further doubling by the end of calendar 2027. The acceleration was telegraphed: on the February call he had already pointed to an “over 4x book-to-bill ratio” — James Anderson, Chief Executive Officer · 2026-02-04, and in May he flagged “we expect our fiscal '27 growth rate to be above fiscal '26” — James Anderson, Chief Executive Officer · 2026-05-06. The August print simply confirms the trajectory. “we produced about 80% more Indium Phosphide lasers in our June quarter than we did the prior year” — James Robert Anderson, Chief Executive Officer · 2026-08-12 That laser output feeds directly into 800G and 1.6T transceiver shipments, and Anderson said data center growth this quarter on a YoY basis should "exceed 80%." The 6-inch platform carries a structural gross margin benefit — CFO Sherri Luther: "4x the amount of output from that wafer... at half the cost." The capacity expansion is being pre-financed by customer long-term agreements that lock in both volume and pricing. “fiscal 27 is basically completely booked out… customers now looking into calendar 2028” — James Robert Anderson, Chief Executive Officer · 2026-08-12, with LTAs running to the end of the decade.The CPO-to-PhotonLink Pivot
The clearest strategic tell in the transcript is a platform shift. In the May call, the story was anchored on CPO revenue — that keyword had surged to the top of Coherent's momentum board in Q2. By the August call, that specific framing has receded (it now sits on the decliner list), replaced by the broader language of integrated optics and photonic technology. Anderson was explicit on why: customers want the full solution, not point ingredients. At ECOC in September, Coherent unveils PhotonLink, "our new platform for integrated optics," spanning light generation, beam shaping, transmission, detection, and conversion back to an electric signal for the XPU or switch ASIC. Initial PhotonLink revenue begins in the December quarter. On CPO demand, Anderson pushed back on the market's noise: “we have seen absolutely no push out of CPO demand. In fact, it is been the opposite… demand getting pulled in” — James Robert Anderson, Chief Executive Officer · 2026-08-12. Scale-up CPO revenue remains on track for 2H CY27; scale-out CPO (including NVIDIA) starts this December. Beyond CPO, the pipeline layers thermal solutions (Thermadite for XPU cooling, 2H CY27), multi-rail systems (1H CY27), and OCS with a >$4B addressable market.Perspective and the Drawdown
This is consensus, not company-unique noise. Lumentum, the closest peer, reported the same week with matching keywords — gig per lane, "ELS module," "ultra high powered laser" — the same substrate of the co-packaged optics wave that has carried the whole optical complex.Yet the tape is telling a more cautious story. Coherent peaked at $426.89 on June 2 and is now in a -32% drawdown; the past 90 days are -5.8%. Valuation has re-rated hard: Price to Revenue sits at 6.8x, up 276% YoY — leaving little margin for error on the very guidance management is keenest to defend. The operating leverage is real: a company that printed a -10% operating margin in Q2 FY23 now reports 21.8% in Q4, with the InP 6-inch ramp and PhotonLink cadence pointing to a $3B quarterly run-rate and a >42% gross margin. On these numbers, the drawdown looks more like a consolidation than a confirmation of peak demand. The subtle keyword tell worth remembering: CPO revenue momentum faded in the same report where the company said CPO demand had never been stronger — keyword drift can lag the business, and investors would do well to read the fundamentals over the sentiment.in 8 out of the past 9 quarters, we have increased our gross margin… once we get to our target of greater than 42%, we will no doubt raise the target