Coherent (NYSE: COHR) has spent the better part of two years digging itself out of a post‑merger funk. All through 2023 and 2024 the share price chopped sideways while management rationalized product lines and paid down acquisition debt.
That slog lulled many investors to sleep, until this spring, when the shares ripped more than 50 % in just eight weeks and most recently vaulted back above their 200‑day moving average for the first time since last September.
Technical analysis that screen thousands of tickers now rates COHR a near‑perfect breakout setup, flagging the move as one of the best risk‑reward charts in the market today, are they right?
Chart Breakout Built on Real Numbers
The share price pop is backed by fundamentals that even seasoned analysts admit they underestimated.
In early May Coherent posted fiscal‑third‑quarter revenue of $1.5 billion, up 24 % year over year, while gross margin expanded nearly five full percentage points. Non‑GAAP earnings swung to a healthy $0.91 a share despite heavy R&D spending aimed at next‑gen optical modules.
Wall Street has taken note. JPMorgan and other brokers immediately lifted their price targets, For example, the consensus now sits north of $100, roughly 30 % above today’s quote, with a high‑water mark of $135.
The upgrade cycle matters because in photonics the sell side tends to stick with conservative models until management proves capacity increases can ship on time. Coherent just did that courtesy of blistering demand from AI data centers.
Inside the AI Plumbing Boom
Nvidia’s accelerators get the headlines, but those GPUs starve without optical links fast enough to keep them fed. Coherent is one of only a handful of companies shipping 800‑gig and soon 1.6‑terabit transceivers built on indium‑phosphide and silicon‑photonic platforms.
The networking segment was the primary driver of last quarter’s record revenue, and management hinted at early orders for 3.2‑terabit modules slated for commercial release in 2025.
Crucially, Coherent isn’t just hawking components but is solving systemic bottlenecks. Two weeks ago the company unveiled a diamond‑loaded silicon‑carbide composite that dissipates heat twice as efficiently as copper, addressing the thermal choke points inside dense AI racks.
The material’s coefficient of thermal expansion is nearly a perfect match for semiconductors, an unsung but critical advantage for reliability.
Investors focused solely on lasers or optics may have missed how important thermal management has become. Data‑center operators already devote an estimated 35 % of operating expense to cooling so anything that cuts watts per FLOP drops straight to the bottom line.
Early adopters testing Coherent’s composite report junction‑temperature reductions of up to 20 °C, enough to extend device lifetimes and allow higher clock speeds without blowing the power budget.
Silicon‑carbide That Wall Street Is Modeling Too Low
Silicon carbide is usually associated with electric vehicles, but the material is quickly finding its way into power supplies that feed AI clusters and into industrial drive systems that must meet tougher efficiency mandates.
Coherent is one of just three U.S. wafer suppliers positioned for the 200‑millimeter migration, and it is applying for CHIPS Act funding to double substrate output at its Pennsylvania fab.
The expansion should start contributing revenue in calendar‑year 2026, yet most sell‑side models still assume low‑single‑digit SiC growth.
That disconnect explains why valuation looks deceptively rich on current earnings and the street is plugging in margins from an optical‑only company while management is building what amounts to a vertically integrated SiC powerhouse.
So Why Did Stan Druckenmiller Jump In?
Druckenmiller rarely telegraphs his moves, but his Duquesne Family Office 13F filings do the talking.
Between the first and second quarters of 2024 he amassed roughly 2.2 million shares, at one point making COHR his single largest equity position at 5 % of the entire portfolio.
In a fall 2024 interview the legend explained, in typically understated fashion, that he was looking for “picks‑and‑shovels that win whether AI is over‑ or under‑hyped.” That comment is telling.
Unlike Nvidia, whose revenue rides on every AI‑cycle upgrade, Coherent collects a toll on the infrastructure itself because the copper can’t carry the traffic if the GPUs can’t stay cool.
The EV in the parking lot can’t fast‑charge, all without photonics and SiC. In other words, volume growth can bail Coherent out even if semiconductor pricing tightens.
Druckenmiller is also a master of supply‑constraint trades. By leaning into Coherent’s capacity build‑out ahead of a likely SiC shortage, he’s applying the same playbook that made his copper bet in the early 2000s so lucrative. Should CHIPS subsidies land, the company’s effective cost of capital falls, and the optionality on SiC margins skyrockets.
Valuation looks less scary than the headline multiple
At about 20x next year’s non‑GAAP earnings, Coherent doesn’t screen cheap against legacy laser peers. But none of those peers is growing revenue north of 20 % with line‑of‑sight to SiC gross margins that could eclipse 45 %.
Backing out the $1.8 billion of net debt and assigning a modest 1.5 × sales multiple to the SiC segment alone, the core photonics business is trading at a discount to the sector despite superior growth.
Analysts have started to close that gap. JPMorgan’s fresh $110 target assumes only mid‑single‑digit SiC share and Goldman’s unpublished blue‑sky model circulated to institutions last week suggests earnings power of $6 a share by fiscal 2028 on 60 % incremental gross margin.
Neither scenario bakes in meaningful upside from diamond‑SiC composites, which could open entirely new licensing revenue streams.
Will the Breakout Be Derailed?
A China slowdown remains the elephant in the photonics room. Roughly 18 % of Coherent sales last quarter went to Chinese OEMs. Tightening export controls further will likely lead to a miss of the mid‑30 % gross‑margin goal, according to management.
Likewise, a glut of 800‑gig transceivers has the potential to pressure ASPs before 1.6‑terabit ramps absorb capacity.
Finally, Coherent’s leverage, while down sharply from post‑merger levels, still leaves little room for execution errors or prolonged inventory digestion. Those are real concerns, but they also explain why efficient‑market theory fails here. After all, fear keeps the stock’s multiple in check even as operating leverage improves.
Is Coherent Stock Breaking Out?
Coherent stock appears to be breaking above a resistance level that formed in early May and has has held until late June, signaling positive overtures for bullish investors.
Breakouts built on momentum alone often fizzle but breakouts built on accelerating earnings, new end markets, and a world‑class investor’s conviction tend to have longer legs. Coherent checks each of those boxes.
The stock just cleared a technically significant resistance level on volume, analysts are scrambling to rewrite their spreadsheets, and Wall Street’s own macro whisperer has already placed his chips.
Will the shares give back gains if AI enthusiasm cools? Absolutely. But the bigger worry for long‑term investors may be waking up a year from now to discover that the SiC business is worth more than Coherent’s entire market cap today, and that the train left the station while they waited for a perfect entry.
With photonics finally getting its day in the sun and silicon carbide poised to solve the power and thermal puzzles of an AI‑hungry world, Coherent looks less like a speculative laser play and more like the toll‑road platform Druckenmiller described. The breakout everybody can see on the chart is merely the market’s first acknowledgment of that deeper transformation.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.