Many discussions about the artificial intelligence (AI) market revolve around Nvidia (NASDAQ: NVDA), the world’s leading producer of data center GPUs. Those chips, which most of the world’s top AI companies use, are still the best picks and shovels for the AI gold rush.
However, the AI market’s growth is also generating strong tailwinds for optical networking companies, which manufacture optical transceivers and components that convert electronic data into light signals and transmit them through fiber-optic cables. Many data centers are now upgrading their older copper wires, which are too slow and generate too much heat to handle the latest cloud and AI applications, to faster fiber-optic components.
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That’s why it wasn’t surprising when Nvidia invested $2 billion in Coherent (NYSE: COHR), one of the world’s largest photonics companies, in early March. Coherent’s stock has rallied about 30% since that announcement, but it could still be worth buying as a long-term AI play.
How fast is Coherent growing?
Coherent, which was known as II-VI until it acquired the original Coherent and inherited its brand and ticker in 2022, generates most of its revenue from its optical business. That segment — which was once a cyclical, slower-growth business — became its core growth engine as the cloud and AI markets expanded. It also sells industrial lasers and specialty chips, but those smaller businesses don’t generate nearly as much growth as its optical networking division.
In fiscal 2025 (which ended last June), Coherent’s revenue rose 23%. From fiscal 2025 to fiscal 2028, analysts expect its revenue to grow at a 31% CAGR. They also expect its EPS to turn positive in fiscal 2026 and grow at a 52% CAGR over the following two years. Its rising…
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