Author: Rita

Tide Guide

J.P. Morgan analyst Samik Chatterjee reaffirmed the buy rating on Coherent (NASDAQ: COHR) at a recent investor meeting. This company specializes in optical communication chips and devices, and the market is underestimating its growth potential. The core logic revolves around three areas: optical transceivers for data centers, co-packaged optics (CPO) chips, and lasers and thermal management in the industrial domain.

Data Communication Transceivers, Demand is Still Rising

Let's start with the most mature business line. COHR's 1.6T transceiver is now standard in data centers, with a persistent supply shortage. The demand for 1.6T has arrived, the pricing environment is healthy, with no evident pressure. Some worry that CPO will steal business from traditional transceivers, but analysts believe the opposite is true. CPO integrates optical chips and electrical chips, which will actually increase the demand for high-end optical devices, rather than replace them.

CPO and OCS, Undervalued Opportunities

CPO is now a hot topic in the industry, with all major chip manufacturers researching it. COHR's competitive advantage lies in providing a complete combination of optical components. They can supply lasers, isolators, VCSELs, and thermoelectric coolers. Essentially, COHR can cover all the optical components needed in a CPO system. This means that the value space COHR can capture from each CPO chip is far greater than that of traditional transceivers.

The target market size for OCS optical circuit switches is $4 billion, with expanding use cases. This expands from optimizing internal traffic within data centers to interconnecting between data centers, and even Scale-Up scenarios. COHR uses liquid crystal technology, which benchmarks against MEMS solutions and has clear advantages in reliability and power consumption.

InP Capacity, Foundation for Upstream Integration

COHR plans to quadruple InP (Indium Phosphide) device capacity within two years. The conversion to 6-inch wafers is already underway, with yields better than established processes. The company has signed contracts with five substrate suppliers to secure supply, resolving most of the bottlenecks for capacity expansion.

Pumped lasers are currently in particularly short supply, and COHR is one of only two high-quality suppliers globally, with certain models capturing a 70% market share. This scarcity presents the company with a strategic opportunity: upstream integration. Previously only selling laser components, COHR can now sell complete line cards or systems. The average selling price of a single solution can increase by more than 10 times.

Gross Margin Target Raised, Cost Structure Improving

The company reaffirms its target for gross margin to be above 42%, suggesting potential upward adjustments in the future. The driving forces come from three aspects: the premium space for high-end products, cost improvements brought on by the transition to 6-inch wafers, and the volume growth of high-margin new products like CPO and OCS. The efficiency of the thermally conductive material thermadite is 2 to 5 times that of copper cooling solutions, also representing a long-term growth point.

Industrial Sector, An Overlooked Growth Point

The self-growth rate of industrial revenue remains at 5% to 10%. Orders for semiconductor processing equipment are increasing, and in 3D sensing, Apple's next-generation Face ID may adopt new protocols, which presents a re-competition opportunity for suppliers.

Optical communication chips are the underlying infrastructure for data centers. AI is driving demand for computing power, thereby increasing demand for high-speed optical interconnections. COHR's position in this supply chain is critical; new opportunities in CPO and OCS, stable growth in the industrial sector, and the potential for improved gross margins all support the judgment for an increase in holdings.

Disclaimer

This article is a compilation and interpretation of third-party brokerage research reports by Tide Research. The ratings, target prices, profit forecasts, and related judgments quoted in the text are solely the views of J.P. Morgan analysts, representing their respective institutions, and do not represent the views of Tide Research, nor do they constitute any investment advice.

Please note three points when reading: 1. Ratings are comprehensive judgments by analysts on a company's prospects and will be adjusted repeatedly according to performance and market conditions. 2. Sell-side research reports tend to be optimistic, and some covered companies have investment banking relationships with the brokerage. 3. The value of a research report lies in its main logical thread and underlying assumptions, rather than any single target price. Focus on logic, not just on ratings.

The market carries risks, and decisions should be made independently. This article should not be used as a basis for buying or selling any securities.

Data source: Coherent Corp investor meeting minutes (J.P. Morgan, Samik Chatterjee, June 22, 2026)

Tide Research · TideResearch · June 2026