COHR's 112% Rally in 6 Months: Is the Stock Overheating?

Coherent Corp. (COHR) has delivered an impressive 111.7% gain over the past half year, vastly outpacing the broader industry’s 13.8% rise and the S&P 500’s 13.6% performance. But beneath the surface of this stellar price surge, questions loom about whether the rally has run too far, too fast.

What’s Driving the Stock Rally?

The surge stems from robust demand for Coherent’s AI infrastructure solutions. During its recent earnings call, management highlighted that 800G transceivers have achieved widespread adoption, with 1.6T products ramping up quickly. The company’s Indium Phosphide (InP) technology is gaining traction too—production yields on 6-inch wafers now exceed 3-inch yields, demonstrating manufacturing maturity. Coherent has even launched 6-inch InP production in Jarfalla, Sweden, banking on the AI datacenter boom.

The company’s Optical Circuit Switch product is another growth driver, opening an additional $2 billion addressable market opportunity long-term. With the global AI market valued at $390.9 billion and expected to expand at 30.6% CAGR through 2033, Coherent appears well-positioned to capture meaningful market share.

Strong Financials, But Premium Valuation Tells a Different Story

On the balance sheet front, Coherent boasts $875 million in cash against just $48 million in debt—a fortress-like position. The current ratio hit 2.33 in Q1 fiscal 2026, up 6.4% sequentially and well above the industry average of 1.58, signaling excellent liquidity.

Revenue consensus for fiscal 2026 stands at $6.7 billion (up 15.1% year-over-year), with earnings per share estimated at $5.1 (up 44.5%). For fiscal 2027, analysts expect revenue growth of 14.5% and EPS growth of 24.6%. Recent estimate revisions have been overwhelmingly positive—eight and six upward revisions for 2026 and 2027 EPS respectively, with zero downward moves.

However, the stock’s valuation tells a cautionary tale. Trading at 32.42x forward earnings versus the industry average of 25.32x, and with a trailing EV-to-EBITDA of 24.07x against 17.81x for peers, Coherent commands a substantial premium that leaves little room for disappointment.

The Competition Factor Can’t Be Ignored

Wolfspeed and ON Semiconductor represent formidable competition in the Silicon Carbide sector where Coherent operates. Wolfspeed commands 12% of the SiC market share, while ON Semiconductor dominates MOSFET devices with 32.5% market share. This competitive intensity matters—Coherent’s Material segment revenues actually declined 6% year-over-year in fiscal 2025, signaling end-market softness in certain areas.

To maintain its edge, Coherent would need aggressive R&D investment, which could pressure margins and complicate the path to balanced profitability.

The Verdict: Hold and Monitor

The investment case for Coherent is genuinely mixed. The company’s AI-driven demand story is real, the balance sheet is rock-solid, and earnings momentum is undeniable. Yet the stock’s valuation premium, coupled with intensifying competition from well-capitalized rivals, creates meaningful risk at current levels.

For existing shareholders, holding makes sense while the growth narrative unfolds. For prospective buyers, waiting for a better entry point on any pullback seems prudent. Coherent remains a quality business in a high-growth sector, but the risk-reward balance has shifted as the stock has soared.