Coherent's Photonic Surge: Scaling AI Data Centers with New Technology

Record Q4 revenue and accelerated growth signal a new phase of expansion.

IIVIP · Earnings Call · 2026-08-12

A Blowout Quarter

Coherent (reported under the ticker IIVIP) delivered a record Q4 FY26: revenue of $2.05 billion, up 42% year-over-year on a pro forma basis, with non-GAAP EPS up 74% — more than twice the revenue growth rate. Full-year revenue reached $7.12 billion, up 28% pro forma, and the company is now guiding to its first $3 billion quarter by the end of fiscal 2027. The driver is the insatiable demand for AI data center infrastructure, where optical connectivity is the backbone. As CEO Jim Anderson said: “AI runs on compute, but it scales on optical connectivity.” — James Robert Anderson, CEO · 2026-08-12

The 6-Inch Indium Phosphide Ramp

A key story is the 6-inch Indium Phosphide capacity expansion, the primary constraint on transceiver production. The company is on track to double internal output by the end of this quarter — a quarter ahead of schedule — and produced 80% more lasers in the June quarter year-over-year, directly supporting 800G and 1.6T transceivers. Anderson noted: “I am quite pleased with the progress on our 6-inch Indium Phosphide ramp.” — James Robert Anderson, CEO · 2026-08-12 This is not just a volume play; yields are higher and cost structure is better, driving gross margin expansion. The company is also planning additional capacity beyond 2027, underscoring its confidence in multiyear demand.

New Platforms: CPO, OCS, and PhotonLink

Beyond transceivers, Coherent is rolling out several new growth platforms. PhotonLink, an integrated optics platform to be unveiled at ECOC in September, targets a $15 billion incremental co-packaged optics and near-packaged optics addressable market. The CEO pushed back on any concerns about CPO delays: “we have seen absolutely no push out of CPO demand. In fact, it is been the opposite.” — James Robert Anderson, CEO · 2026-08-12 He also emphasized the growing intensity of customer engagements across both CPO and NPO, with integrated optics becoming a one-stop-shop platform leveraging the company's photonic technology leadership. Additionally, Optical Circuit Switching (OCS) is expanding, with the TAM doubled to $4 billion.

Visibility and Long-Term Commitments

The company's backlog now extends into calendar 2028, with long-term agreements (LTAs) running through the end of the decade. This provides unprecedented visibility, as Anderson explained:

our backlog now extends out--you know, fiscal 27 is basically completely booked out We are booked really through the end of calendar 2027.
James Robert Anderson, CEO · 2026-08-12

These LTAs include volume commitments, pricing visibility, and take-or-pay agreements, giving Coherent clear line of sight into capacity needs and revenue growth.

Margins and Profitability

Gross margin improved to 40.2% in Q4, up 215 basis points year-over-year, with the company targeting over 42% from its Investor Day. Operating margin expanded to 21.8%, and CFO Sherri Luther noted that the 6-inch cost structure and new product ramps — 1.6T, OCS, CPO, multi-rail, and thermal management — will continue to drive improvement. She said: “we have made, I think, great progress over the past quarters, and we are certainly super focused on continuing to make progress moving forward.” — Sherri R. Luther, CFO · 2026-08-12 The combination of revenue growth, margin expansion, and operating leverage has produced EPS growth outpacing revenue by nearly 2x, a trend expected to continue. Coherent's fiscal 26 was a watershed: the first $7 billion year, and the company is now on a trajectory to cross $12 billion in fiscal 27. With record bookings, a thriving technology roadmap, and a strategic US manufacturing footprint, Coherent is squarely at the center of the AI optical networking boom.