Coherent Corp. (NYSE:COHR) is preparing for the next phase of AI data center expansion. On September 21, the company launched PhotonLink, an integrated optics platform. It is designed for co-packaged optics, near-packaged optics, and chip-to-chip connectivity. The company already has more than 10 customer engagements for both CPO and near-packaged optics, with initial PhotonLink revenue expected to ramp in the December quarter. In my view, Coherent’s advantage lies in its ability to bring several essential optical technologies together in one solution. This could make it a more valuable supplier to customers. The company’s integrated optics strategy could give it a larger role in the AI buildout. Curious which other stocks are riding a similar CPO growth trend? See Top 10 Co-Packaged Optics (CPO) Stocks to Buy in 2026.
Why I Think Coherent Has More Room to Grow
What makes me bullish on Coherent is that it does not have to wait for CPO to become mainstream to benefit from AI networking demand. Its existing optical business is already growing rapidly, while PhotonLink gives it another opportunity to capture growth. This shows that even if adoption is slower than expected, the company can still benefit from demand for its existing optical products.
Moreover, a TD Cowen analyst made a point two months ago that supports my view. Sean O’Loughlin reiterated a Buy rating on COHR with a $395 price target on Aug 13. He pointed to opportunities in high-speed optical transceivers and newer technologies such as CPO for the company. I think this supports the case that Coherent has multiple ways to benefit from the expansion of AI infrastructure.
Coherent’s Growth Comes at a Premium
Coherent’s growth opportunities come with a valuation risk. Its forward non-GAAP P/E of 30.57x is about 12% above its five-year average of 27.42x and well above the sector median of 22.87x. Its forward price-to-sales ratio of 5.34x is even more stretched, sitting about 90% above its five-year average of 2.81x. I believe these multiples suggest investors are already pricing in strong growth from AI networking. PhotonLink could help justify the premium if adoption gains momentum. But if AI networking demand slows or PhotonLink takes longer to gain traction, the stock could come under pressure. In my view, this is a risk that cannot be ignored, but for an emerging technology that could change the landscape of many data centers, investors have the option to either wait for more visibility into future earnings or take on the risk. Alternatively, if you want to look for undervalued AI stocks, you can check out the 10 best AI stocks to buy under $25.
Fewer hedge funds held Coherent in Q2, with the count falling from 114 in Q1 to 105 in Q2. However, in Q1, hedge funds had invested around $3.9 billion in the stock, a figure that grew to $4.62 billion by Q2.
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