Jim Anderson, the chief executive of Coherent, opened the company’s fiscal fourth-quarter call with a simple summary: a record year, significant margin expansion, and earnings growth that ran more than twice as fast as revenue. The numbers behind that summary, released after the close on Aug. 12, show a photonics maker riding the AI data-center boom as hard as any supplier in the industry.
Revenue for the quarter ended June 30 came in at $2.05 billion, up 34% from a year earlier and up 42% on a pro forma basis. Gross margin on a GAAP basis was 38.5%, an improvement of 277 basis points year over year; on a non-GAAP basis, gross margin was 40.2%, up 215 basis points. GAAP earnings per share were $1.19, up $2.02 from the year-ago quarter, and non-GAAP earnings per share were $1.74, up 74 cents.
The quarter capped the strongest fiscal year in the company’s history. Coherent, based in Saxonburg, Pa., makes the lasers, optical components, and transceivers that move data inside AI data centers, and it has become one of the clearest beneficiaries of the industry’s shift from copper cables to optical connections. As AI models grow and clusters expand, the links between servers increasingly run on light rather than electricity, and the content of optics per rack has climbed sharply.
The company’s datacom business, its largest, sells the transceivers that carry data between servers and switches in AI clusters. Demand for 800-gigabit modules has been particularly strong, and customers are already pressing suppliers for 1.6-terabit versions. Coherent has said it expects the industry to move through successive generations of speed every two years or so, each cycle adding more optical content per rack and, with it, more revenue per data center.
Anderson credited operational execution for the margin gains, which pushed the company’s profitability up even as it scaled. “We enter fiscal 2027 with exceptional customer demand, expanding production capacity, and multiple new growth platforms beginning to ramp,” he said in the release. He pointed to the transition from copper to optical connectivity in AI data-center architectures as a multi-year opportunity for the company’s photonics portfolio.
The chief financial officer, Sherri Luther, said the company is being disciplined with capital allocation, prioritizing investments in manufacturing capacity so it can keep up with accelerating customer demand. The company’s balance sheet has been a focus for investors since the merger that created the modern Coherent, and management has made debt reduction and capacity spending the twin priorities.
The modern Coherent is the product of a roughly $7 billion combination completed in 2022, when II-VI Inc. bought Coherent Inc. in a deal that united lasers, optical components, and advanced materials under one roof. The integration took longer than management hoped and weighed on results for two years; the current numbers reflect that work finally paying off, with the merged company’s scale now a selling point against smaller rivals.
Guidance for the first quarter of fiscal 2027 came in ahead of expectations. Coherent said it expects revenue between $2.2 billion and $2.4 billion, non-GAAP gross margin between 39.5% and 41.5%, operating expenses between $400 million and $420 million on a non-GAAP basis, and a non-GAAP tax rate between 18% and 20%. The midpoint of the revenue range implies another sequential jump of roughly 12%, a pace that would put the company’s annual run rate above $9 billion by the end of the calendar year.
The guide reflects the demand picture across the company’s three main businesses: data communications, which feeds directly into AI clusters; telecommunications, where carriers are upgrading networks; and industrial and instrumentation, where lasers cut, weld, and measure. Datacom has been the growth engine, and analysts expect it to stay that way as hyperscalers spend on the optical layer of their AI infrastructure.
Coherent is not alone in benefiting, and competition in optical transceivers is intense. Rivals including Lumentum and a cluster of Asian suppliers are chasing the same orders, and pricing for the highest-speed modules has at times been aggressive. Coherent’s answer has been scale: its manufacturing footprint and its portfolio of lasers, modulators, and packaging technologies let it supply more of the optical signal chain than most competitors.
The stock has been a major winner over the past two years as investors bet on optical content growth, and the valuation now reflects that enthusiasm. The risk, analysts said, is that hyperscaler spending cycles are lumpy: if AI capex pauses, orders for transceivers could slow as quickly as they accelerated.
Wall Street has taken notice. Analysts have raised price targets through the past year as optical orders accelerated, and several describe Coherent as a core holding for investors who want exposure to the AI infrastructure buildout without the volatility of chip designers. The shares trade at a premium to the broader market, a level that leaves little room for disappointment if the optics cycle cools. Management argues the copper-to-optical transition is structural rather than cyclical, a shift that continues regardless of the quarterly capex mood.
For now, the company is running ahead of its own expectations. Record revenue, expanding margins, and a guide that points higher are the combination investors want to see from an AI infrastructure supplier, and Coherent delivered it in the quarter that closed its fiscal year. The question for the coming year is whether the company can keep converting that demand into profit at the pace the numbers suggest.
