Deep Research

Coherent (COHR)

4 min read

Snapshot

  • Ticker: COHR (NYSE)
  • Bucket: AI Connectivity & Optics
  • Q1 2026 position: 631,159 shares, $150,348,385 — 3.01% of 13F, #10 holding
  • HQ: Saxonburg, Pennsylvania
  • One line: Vertically integrated photonics conglomerate — datacom transceivers, indium-phosphide laser chips, optical circuit switches, plus industrial lasers — now tied to NVIDIA via a multi-billion-dollar strategic agreement.

Business Overview

Coherent (the former II-VI, which acquired Coherent Inc. in 2022) is the most vertically integrated player in AI optics: it grows its own indium-phosphide wafers, fabs laser chips, and assembles 800G/1.6T datacom transceivers, ZR/ZR+ coherent pluggables, and a differentiated liquid-crystal optical circuit switch (OCS) platform. Datacenter & Communications was 51% of FY2025 revenue and is the growth engine; the remainder spans industrial lasers, instrumentation, and materials (SiC business partially divested).

Fiscal 2025 (ended June 2025) revenue was a record **3.53; the company began revenue shipments of 1.6T transceivers and first OCS revenue. Fiscal Q3 2026 (Mar 2026) revenue was **1.4B (vs 1.41.

The defining 2026 event: on March 2, 2026 Coherent signed a multi-year strategic agreement with NVIDIA including a multi-billion-dollar purchase commitment and capacity/access rights for advanced laser and optical networking products — and NVIDIA is investing $2B in Coherent to support R&D and capacity. Coherent is doubling indium-phosphide output at Sherman, Texas by mid-2026 and more than doubling it again by end-2027.

Financial Trajectory

PeriodRevenueYoYNon-GAAP gross marginNotes
FY2024 (Jun)~$4.71B~+9%~35%datacom AI ramp begins
FY2025 (Jun)$5.81B+23%37.9%D&C = 51% of revenue; 1.6T + OCS first revenue
Q3 FY2026$1.81B+21%39.6%datacenter +37% YoY; NVIDIA deal signed

Why Atreides Owns It

Coherent completes the optics trio with the most “wafers”-literal asset in the bucket: captive indium-phosphide capacity, the scarcest substrate in AI networking. Baker’s thesis holds that physically constrained inputs earn the cycle’s rent, and the NVIDIA agreement is direct confirmation — when the dominant AI platform vendor pre-commits billions and injects 2B+ TAM expansion by 2030, per management) rides the same circuit-switched datacenter architectures Google validated. Relative to Lumentum, Coherent is cheaper on margins-normalized terms but messier — conglomerate structure, merger debt — which is consistent with Atreides running it at roughly half the Lumentum + Ciena weight and trading it more tactically (the Q4 2025 call overlay below).

Position History

QuarterTypeShares/NotionalValue% of 13F
Q4 2024—not held——
Q1 2025—not held——
Q2 2025—not held——
Q3 2025Common913,778$98,432,1661.92%
Q4 2025Call900,000$166,113,0002.03%
Q4 2025Common1,235,246$227,989,3542.79%
Q1 2026Common631,159$150,348,3853.01%

A late entrant relative to Lumentum: initiated Q3 2025, then leveraged up in Q4 2025 with both more common (1.24M shares) and calls on 900k underlying — peak exposure ~$394M notional, nearly 5% of the book, positioned ahead of the AI-optics melt-up and the NVIDIA deal. In Q1 2026 the calls are gone and common was halved: the levered bet was monetized into the post-deal strength, leaving a core 3% position. (Call notional reflects underlying share value, not premium.)

Risks

  • Transceiver competition: Innolight, Eoptolink, and other Chinese assemblers compress module pricing; Coherent’s margin depends on keeping value in the chip and OCS layers.
  • NVIDIA concentration cuts both ways: the $2B partnership ties Coherent’s capex to one customer’s roadmap; an NVIDIA architecture shift (e.g., faster CPO transition on different suppliers) strands capacity.
  • Conglomerate drag: industrial lasers and materials (~half of revenue) grow slowly and obscure the AI story; portfolio-reshaping execution risk persists.
  • Balance sheet: legacy II-VI/Coherent merger debt limits flexibility versus net-cash peers, though the NVIDIA investment helps.
  • InP capacity race: both Coherent and Lumentum are doubling-plus capacity into 2027; if AI transceiver demand pauses, today’s scarcity pricing unwinds quickly.

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