Coherent Expects Mid-Teens Revenue CAGR as Gross Margins Expand from 38%
Coherent forecasts mid-teens top-line CAGR led by its data center business projecting a high-teens CAGR and expects gross margins to expand from 38%. Management has reduced debt obligations to approximately $3.5 billion and reported EPS at a three-year high of $0.76.
1. Robust Revenue Growth Driven by AI Data Center Pivot
Coherent Corp. is forecasting a mid-teens compound annual growth rate for its top line over the next several years, with its data center optics segment projected to outpace the company average by achieving a high-teens CAGR. Management attributed this acceleration to an industry-wide shift from copper to silicon photonics and optical connectivity solutions in hyperscale AI data centers. The company’s leaders noted that the majority of last year’s revenue surge occurred in the final quarter of 2025, when shipments of coherent transceivers and wavelength division multiplexing modules ramped sharply to meet customer demand for higher-bandwidth links.
2. Expanding Gross Margins and Record EPS
Gross margins at Coherent have climbed from their prior levels to approximately 38%, and the company expects further expansion as higher-value photonic integrated circuits gain scale. In the most recent quarter, earnings per share reached $0.76, marking the highest quarterly EPS in three years. Management projects additional margin leverage driven by volume efficiencies, reduced fixed costs and an increasing contribution from software-enabled networking products that carry higher gross margins than traditional optical hardware.
3. Strengthening Balance Sheet and Debt Reduction
Over the past twelve months, Coherent has aggressively paid down its debt obligations, trimming total liabilities to roughly $3.5 billion. The company financed a significant portion of its debt reduction through free cash flow generated by its core business and selective asset monetizations. As a result, leverage ratios have declined meaningfully, providing the company with greater financial flexibility to pursue strategic investments in R&D and potential bolt-on acquisitions within the AI optics ecosystem.
4. Exceptional Stock Performance Reflects Investor Confidence
Coherent’s share price nearly doubled over the past year, with a remarkable 112% gain in the six months leading up to year-end 2025. Analysts attribute this rally to strong visibility into AI-related order backlogs, the company’s improving profitability profile and the prudent capital allocation strategy adopted by management. Investors have rewarded Coherent’s execution on debt reduction and margin expansion, positioning the company as a leading pure-play beneficiary of the AI supercycle in optical connectivity.