$Coherent(COHR)$ fiscal year 2026 fourth-quarter results were strong. Revenue, profit and next-quarter guidance all beat market forecasts. The debate has moved from whether AI optical demand is real to whether Coherent can add capacity on time and how much growth is already priced into the stock.
Q4 revenue reached $2.046 billion, up 33.8% year over year and 13.3% quarter over quarter, passing $2 billion for the first time. Non-GAAP gross margin was 40.2%, up 2.15 percentage points from a year ago. Non-GAAP operating profit rose 62% to $446 million, while adjusted earnings per share grew 74% to $1.74. Profit grew much faster than revenue, showing gains in product mix, yields and pricing. Coherent fiscal year 2026 Q4 results
Full-year revenue was $7.118 billion, up 22.5%. On a comparable basis that removes the effect of sold units, growth was 28%. Non-GAAP operating profit rose 40.5%, while earnings per share increased from $3.53 to $5.61. The debt, merger costs and weak units that weighed on Coherent in past years now have far less impact.
The Datacenter and Communications unit drove most of the growth. Q4 revenue reached $1.615 billion, or 79% of group revenue, up about 59% year over year. Industrial revenue fell about 16% to $431 million. Coherent’s results now depend much more on AI data centers, including 800G and 1.6T transceivers, indium phosphide lasers, optical circuit switches and future co-packaged optics products.
Management remains upbeat on demand. Orders now reach into 2028, while long-term deals run through the end of the decade. The company has seen no delay in co-packaged optics demand. It expects quarterly revenue to pass $3 billion by the end of fiscal year 2027.
That target still requires strong execution. Compared with Q4 revenue of $2.046 billion, Coherent needs growth of almost 47% over the next four quarters to reach $3 billion.
Indium phosphide capacity remains the main limit. The company made about 80% more indium phosphide lasers in Q4 than a year earlier. It plans to double internal output by the end of the current quarter, one quarter ahead of its prior plan.
The six-inch platform is a key part of this expansion. Management said it can produce about four times the output of the three-inch platform at half the unit cost. If capacity, yields and use rates all improve, gross margin could move above the company’s 42% target.
New products should add more revenue. Coherent plans to launch its PhotonLink integrated optics platform in September, with first revenue expected in the December quarter. Optical circuit switches, co-packaged optics, near-packaged optics, Multi-Rail systems, and power and cooling products should also start to grow. Management has raised its estimate for the optical circuit switch market from $2 billion to more than $4 billion.
For the first quarter of fiscal year 2027, Coherent expects revenue of $2.2 billion to $2.4 billion. The midpoint implies about 12% sequential growth. Non-GAAP gross margin should be 39.5% to 41.5%, with earnings per share of $1.85 to $2.05. Both revenue and profit guidance were above market forecasts at the time, showing that AI optical demand is still rising.
This growth needs heavy spending. Q4 capital expenditure rose to $556 million, while full-year investment in property and equipment reached $1.103 billion. Inventory also climbed from $1.438 billion to $2.581 billion.
Management said some data center projects have a payback period of about 18 months. Even so, any delay in demand, product approval or capacity growth could leave Coherent with more stock, depreciation and cash flow pressure.
A possible United States ban on Chinese optical transceiver imports offers another policy gain. Coherent has more than 20 production sites in the United States and could win more orders if clients raise local sourcing. The plan is still being drafted, so its scope and timing remain unclear. It should not yet be included in the core profit forecast. Reuters
Coherent shares fell about 2% after hours despite the strong results and outlook. The stock had already gained sharply before the release, leaving a high bar for the report.
My view remains positive. Coherent has clear demand, firm orders and a sound product path. Near-term results now depend on capacity.
The three main items to watch are indium phosphide output, whether non-GAAP gross margin can move above 42%, and whether higher capital spending turns into revenue. If all three keep improving, quarterly revenue above $3 billion looks possible. If capacity or yields miss the plan, the current valuation could lead to sharp price swings.
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