Coherent (COHR): The Company Selling the Light That Connects Every AI Chip

The Story Is Not the Chip. It Is the Connection.

If anyone on Wall Street still does not know this corner of the market, now is the time to listen, and to listen fast. The biggest story of the coming decade is not the single chip. It is the connection between the chips. We are moving from a world of separate devices to a world where everything talks to everything else at the speed of light.

Coherent leads that shift inside the data center. Its tool of choice is co-packaged optics, or CPO. Instead of running data over slow copper traces, the optical engine is placed right on the substrate next to the processor. The speed is enormous. Until recently it was very hard to build lasers small and reliable enough to sit close to a processor running hot. You can follow the live numbers on the Coherent Corp (COHR) stock page on CleaRank.

Coherent solved that problem with a clever piece of engineering. It built modules that sit a short distance from the processor on the same board, but not pressed against the hot chip itself, so the laser stays in a relatively cool zone. The data still moves as light into the processor. Coherent does not just make the laser. It makes the cooling and all the connections around it too.

“Most investors are still pricing Coherent as a parts vendor. It is actually the toll booth on the road that every AI data center now has to travel. The connection between chips is the bottleneck, and Coherent owns the connection.”

Shaun David, CleaRank Co-Founder

A Cooling Secret Born in Space

Heat is the enemy of every laser. Coherent holds a cooling patent based on a material made from diamond and silicon carbide, originally developed for satellites in space, where heat control is a matter of life and death for the hardware. That same technology now lets a laser run cool and stable while sitting close to a processor that throws off enormous heat.

Picture how it looks: a processor chip and a photonic chip on the same board, with an external laser source that injects light into the processor. The laser stays in the cool corner. The light does the traveling. This is the layout that makes the whole approach work at scale, and it is the layout Coherent is ready to ship in volume.

“The hard part was never the chip. It was making a laser small and reliable enough to sit beside a processor running hot. Coherent keeps the laser in the cool zone and pipes light to the chip. In 2026 the optics sit next to the processor. By 2027 they move inside it.”

Shaun David, CleaRank Co-Founder

Why the Second Half of 2026 Is the Turning Point

The second half of 2026 is the real turning point. The CPO modules will sit next to the processor, and scale-out revenue begins. In 2027 the CPO moves inside the processor itself, which is the most dramatic change of all. The market already understands that Coherent is the one company able to deliver every component in a single package. You can read the full partnership terms in the NVIDIA and Coherent strategic partnership announcement.

NVIDIA invested $2 billion to make sure Coherent is ready for mass production in 2027 and is first in line. The agreement covers multiple CPO-related products through the rest of the decade, and Coherent plans to double capacity in 2026 and double again afterward, with nearly all new capacity on 6-inch wafer lines. NVIDIA confirmed the scope in its own partnership announcement.

“When NVIDIA writes a $2 billion check to lock in a supplier, it is not buying a vendor. It is removing that vendor from everyone else’s shopping list. That is the part of this deal the headline price tag understates.”

Shaun David, CleaRank Co-Founder

The Numbers Behind the Narrative

The story is backed by hard results. In its fiscal third quarter of 2026, Coherent reported revenue of $1.81 billion, up 21% year over year, with non-GAAP earnings per share of $1.41, both ahead of analyst expectations. The Datacenter and Communications segment supplied 75% of total revenue and grew 41% year over year, supported by demand tied to AI data center buildouts.

At a recent price near $385, Coherent carries a market value in the tens of billions of dollars, and the analyst community has been racing to catch up. Across roughly 21 analysts the average rating is a Buy. In the weeks after the May earnings report, BofA lifted its target to $400, TD Cowen moved to $395, and Morgan Stanley raised its number to $330, all citing stronger AI infrastructure demand and a larger projected optical market.

The Most Strategic Asset: Owning the Materials

The most strategic asset Coherent holds is control of indium phosphide and the ability to make its own lasers from that same indium. Customers are willing to pay in advance to secure supply. Coherent recently built the world first 6-inch indium phosphide scalable wafer fabs, a move that produces about four times the devices per wafer and cuts die cost by more than 60%.

One of the more interesting parts of the story is silicon carbide, known as SiC. It is the one material China simply cannot produce at Western quality. Without it you cannot build electric vehicles with long driving range or advanced defense aircraft. Coherent is regarded as one of only five leading global suppliers, with its SiC operation backed by roughly $1 billion from Denso and Mitsubishi Electric. The same material trend runs through the autonomous future we covered in our look at the road ahead.

Readers who want the wider context on where these materials end up can see our analysis of the self-driving revolution and its 1000x growth potential.

“Rivals can copy a transceiver design. They cannot easily copy 20 years of indium phosphide know-how, a silicon carbide line China cannot match, and a cooling patent born in the space program. Coherent owns the parts everyone else has to buy.”

Shaun David, CleaRank Co-Founder

From Your Phone to Your Living Room

The reach goes well beyond the data center. The Face ID on a phone relies on a laser that scans the face. Mixed-reality headsets, the kind the whole world is now talking about, use the same family of sensing lasers. These devices fire pulses of light into the room to map where the wall is, where the couch is, and where you are standing.

A phone uses one such laser for face scanning. A mixed-reality headset uses dozens. Think about what that means for unit sales as these headsets move from niche to mainstream. Coherent also supplies VCSEL illumination modules for automotive and industrial LiDAR, which puts it in the sensing layer of the autonomous era as well.

“The consumer sensing business is the quiet hedge. If the AI data center cycle ever cools, dozens of lasers per headset and a seat in the LiDAR supply chain give Coherent a second growth engine that most models ignore.”

Shaun David, CleaRank Co-Founder

It Wins No Matter Who Wins

Coherent supplies this technology to Meta, to Google, and to Samsung. It does not matter which platform wins the race, because Coherent is the big winner either way. It also holds strategic ties with Mitsubishi and with the firm Quside in quantum encryption, and it sits across nearly the entire advanced photonics supply chain. For a related angle on where computing and encryption are heading, see our piece on why IBM could be the dark horse of the AI and quantum race.

This is the picks and shovels position in its purest form. When several giants are spending fortunes to win a market, the supplier selling each of them the same essential component can be the steadiest winner of all.

“You do not have to guess which cloud or which phone wins. Coherent supplies Meta, Google, Samsung, and the NVIDIA stack alike. It is positioned to be the big winner of the optical era regardless of who takes the crown.”

Shaun David, CleaRank Co-Founder

What Could Go Wrong

No thesis is complete without the risks. The first is timing. CPO is a complex transition, and any slip in the 2026 scale-out or the 2027 scale-up would hit a stock that already prices in strong execution. The second is concentration. A large share of growth now leans on AI data center demand, so any pause in hyperscaler spending would be felt quickly.

The third is competition at the edges. Coherent lost ground in consumer 3D sensing when one large customer shifted suppliers, a reminder that even a strong franchise can be displaced on specific sockets. The valuation also leaves little room for error after a powerful run. These are real risks, and they belong in any honest model of the stock.

CleaRank Price Target Scenarios

Our scenarios anchor on the analyst range, the CPO ramp schedule, and the strength of the materials moat. They are estimates, not promises, and they assume the broad AI infrastructure cycle stays intact.

Frequently Asked Questions

What does Coherent actually make?

Coherent makes the optical components that move data as light, including co-packaged optics for AI data centers, indium phosphide lasers, silicon carbide materials, and sensing lasers used in consumer devices and LiDAR.

Why did NVIDIA invest $2 billion in Coherent?

NVIDIA invested to secure Coherent capacity and place itself first in line for mass co-packaged optics production, with scale-out revenue starting in the second half of 2026 and scale-up CPO arriving in 2027.

What is co-packaged optics and why does it matter?

Co-packaged optics places the optical engine on the same substrate as the processor, so data travels as light with far less power loss and far higher speed than copper. It is becoming essential as AI clusters grow.

What is Coherent’s strongest competitive advantage?

Its control of the full materials stack. Coherent makes its own indium phosphide lasers, is a top-five global silicon carbide supplier, and holds a space-grade cooling patent, a combination rivals cannot easily copy.

Where can I read related CleaRank analysis?

See the Coherent Corp (COHR) stock page, our view on the self-driving revolution, and why IBM could be a dark horse in AI and quantum.

Selling the Light That Holds the AI Era Together

Coherent is not a bet on one chip or one customer. It is a bet on the connections that every AI system depends on, backed by materials the company controls from the ground up. Analysis by Jacob Bakshi, with commentary from Shaun David. As the optical era arrives, the company selling the light may matter as much as the companies selling the chips.

Disclaimer: This article is for informational purposes only and does not constitute financial, investment, or legal advice. Coherent Corp (COHR) is a volatile technology stock whose value depends on the pace of AI infrastructure spending, the execution of its co-packaged optics roadmap, and broader semiconductor cycles. Figures and price targets are estimates based on public information available at the time of writing and may change. CleaRank and its contributors may hold positions in the securities mentioned. Always do your own research and consult a licensed financial advisor before making investment decisions.