Coherent Shares Slide Amid Broader AI Infrastructure Concerns

Coherent US19247G1076

Shares of photonics specialist Coherent experienced a sharp intraday decline on Monday, falling more than 5%. This drop occurred against a backdrop of growing investor scrutiny over the practical limits of scaling artificial intelligence infrastructure, even as the company recently affirmed its leadership in next-generation optical transceiver technology.

The sell-off appears linked to a sector-wide reassessment of the AI network upgrade cycle's trajectory. While Coherent has successfully demonstrated its 1.6T optical transceiver capabilities, market participants are increasingly focused on the complexities of hyperscale installations. Recent industry analysis suggests that for AI clusters exceeding 100,000 compute nodes, the primary bottlenecks are shifting from raw processing power to network bandwidth, latency, and the physical reliability of connections. This shift has introduced caution regarding the near-term scalability of the multi-rail technology platforms Coherent is advancing.

From an operational standpoint, the company continues to execute its technology roadmap. It recently commenced production on a 6-inch Indium Phosphide (InP) platform at its Järfälla, Sweden facility. Management views this platform, which promises higher yields than previous 3-inch generations, as critical for next-generation AI infrastructure. Furthermore, Coherent has delivered optical circuit switches (OCS) in two configurations to seven major customers, indicating a growing addressable market.

Robust Financial Performance Provides Contrast

The day's negative price action stands in stark contrast to the firm's recently reported exceptional financial results. For the first quarter of fiscal 2026 (ending September 30, 2025), Coherent posted revenue of $1.58 billion, a 17% year-over-year increase. The company significantly surpassed analyst expectations, reporting non-GAAP earnings per share of $1.16 against a consensus forecast of $1.04.

This performance was primarily driven by a 23% surge in its AI datacenter business, fueled by the rapid adoption of 800G transceivers and the initial ramp of 1.6T units. Coherent also utilized proceeds from the sale of its Aerospace and Defense business to reduce debt by $400 million. Consequently, its net debt leverage ratio improved to 1.7x from 2.4x a year earlier. A recent debt refinancing further lowered interest rates by 60 basis points.

Guidance and Forward-Looking Catalysts

Looking ahead to the second quarter of fiscal 2026, Coherent has reaffirmed its positive revenue guidance, projecting a range of $1.56 billion to $1.70 billion. Management continues to anticipate adjusted gross margins between 38% and 40%, supported by ongoing cost reductions and a product mix shift toward higher-margin AI offerings.

The next significant event for investors will be the release of Q2 results, scheduled for February 4, 2026. The current analyst consensus projects adjusted earnings per share of $1.02 for that period. Despite the recent pullback, the stock technically remains within a longer-term uptrend, trading well above its 52-week low of $45.58. Markets will be watching to see if current support levels hold as the industry navigates the complexities of AI infrastructure expansion through 2026.