As of February 23, 2026, the global technology sector has shifted its gaze from the "GPU gold rush" to the "connectivity bottleneck." In this new era of artificial intelligence infrastructure, few companies occupy a more critical position than Coherent Corp. (NYSE: COHR). Once a fragmented conglomerate of industrial lasers and specialized materials, Coherent has undergone a radical transformation over the last 20 months under new leadership, emerging as the premier provider of the optical transceivers and photonic components that allow AI data centers to breathe.

With the 1.6T (Terabit per second) networking cycle now in full swing, Coherent is no longer just a component supplier; it is viewed by Wall Street as a foundational engine of the AI revolution. Today, we examine how the company navigated the volatility of early February and why its strategic pivot toward high-speed networking has made it one of the most watched stocks of the 2026 fiscal year.

Historical Background

The Coherent of 2026 is a product of ambitious consolidation. Its roots lie in II-VI Incorporated, a company founded in 1971 that specialized in engineered materials and optoelectronic components. Over decades, II-VI grew through aggressive acquisitions, culminating in the 2022 transformative merger with Coherent, Inc., a pioneer in the laser industry. The combined entity took the Coherent name, signaling a shift toward a more unified brand identity.

However, the initial years following the merger were marked by high debt and a complex portfolio that spanned across disparate industries like dental equipment, aerospace, and semiconductor manufacturing. The true "modern" era of Coherent began in June 2024 with the appointment of Jim Anderson as CEO. Anderson, arriving from Lattice Semiconductor, initiated a "speed-to-market" strategy that streamlined the company’s focus toward the burgeoning AI data center market, marking the most significant strategic shift in the company's 50-year history.

Business Model

Coherent operates a vertically integrated model that is unique in the photonics industry. While many competitors outsource their laser chips or specialize only in transceiver assembly, Coherent controls the entire value chain—from the growth of advanced materials like Indium Phosphide (InP) and Silicon Carbide (SiC) to the design of sophisticated optical modules.

The company's revenue is primarily derived from three segments:

• Networking: The high-growth engine, providing optical transceivers (800G and 1.6T) that connect GPUs in massive clusters.
• Lasers: Serving industrial manufacturing, microelectronics (OLED displays), and medical markets.
• Materials: Producing engineered substrates and components for power electronics and sensing.

This vertical integration allows Coherent to capture higher "dollar content" per data center rack, as they produce both the internal laser chips and the external pluggable modules.

Stock Performance Overview

As of February 23, 2026, COHR has been one of the standout performers of the mid-2020s.

• 1-Year Performance: The stock is up approximately 85%, driven by the massive ramp of 1.6T transceivers and successful divestitures of non-core assets.
• 5-Year Performance: After a period of stagnation and debt-related pressure following the 2022 merger, the stock has broken out to new all-time highs, significantly outperforming the PHLX Semiconductor Index (SOX).
• 10-Year Performance: Long-term shareholders who held through the II-VI transition have seen a compounded annual growth rate (CAGR) exceeding 20%, though the journey was marked by significant cyclical volatility.

Notable moves in early February 2026 included a sharp 18% "flash dip" caused by concerns over AI algorithm efficiency (the "DeepSeek shock"), which has since been largely retraced as analysts reaffirmed the structural demand for bandwidth.

Financial Performance

Financial results for the second quarter of fiscal year 2026 (ended December 2025) showcased the success of the Anderson turnaround.

• Revenue: Reached a record $1.69 billion for the quarter, an 18% increase year-over-year.
• Margins: Non-GAAP gross margins have stabilized at 41%, up from 36% just two years ago, reflecting a shift toward higher-value AI products.
• Profitability: Non-GAAP EPS for the most recent quarter was $1.29, beating the consensus estimate of $1.15.
• Debt Management: A key focus for management, the company reduced its debt by over $400 million in the 2025 calendar year, primarily through the divestiture of its Aerospace and Defense division and strong free cash flow.

Leadership and Management

Jim Anderson’s leadership has been a primary catalyst for investor confidence. Since taking the helm in June 2024, Anderson has replaced several key executives with a lean management team focused on "operational excellence." His strategy involves rigorous portfolio pruning—exiting businesses where Coherent cannot be #1 or #2—and accelerating R&D cycles.

The board of directors has also evolved, adding expertise in cloud computing and semiconductor operations. This shift in governance has moved Coherent away from its reputation as a "family-run" industrial firm toward a modern, high-tech powerhouse with clear shareholder alignment.

Products, Services, and Innovations

Innovation in 2026 is centered on the 1.6T optical transceiver. As AI models require ever-larger clusters of GPUs, the physical copper wiring used in the past has become a bottleneck. Coherent’s 1.6T solutions utilize advanced Silicon Photonics and Electro-absorption Modulated Lasers (EML) to move data at the speed of light with minimal power consumption.

A massive competitive edge emerged in late 2025 with the ramp of Coherent's 6-inch Indium Phosphide (InP) wafer line in Sherman, Texas. By transitioning from 4-inch to 6-inch wafers, Coherent has significantly lowered the per-unit cost of the laser chips that go into every transceiver, creating a manufacturing moat that competitors like Lumentum are still racing to match.

Competitive Landscape

The primary rival remains Lumentum Holdings Inc. (NYSE: LITE). In the 2026 market, the competition is a "clash of philosophies."

• Lumentum remains a favored "pure-play" component provider with a dominant market share in EML laser chips.
• Coherent wins on vertical integration and scale. By selling the entire transceiver module to hyperscalers like Google, Meta, and Microsoft, Coherent captures more revenue per connection.

Secondary competition comes from Innolight in China, though geopolitical trade barriers and the shift toward "Made in America" supply chains for critical AI infrastructure have favored Coherent’s domestic manufacturing footprint.

Industry and Market Trends

The "AI Networking Supercycle" is the dominant trend of 2026. Industry analysts estimate that for every $1 spent on AI compute (GPUs), approximately $0.15 to $0.20 is now spent on networking and connectivity—a ratio that has doubled since 2023.

Additionally, the rise of "Liquid Cooling" in data centers has changed the physical requirements for optical transceivers, requiring them to operate in harsher thermal environments. Coherent’s expertise in advanced materials has allowed it to lead in "hardened" optical modules designed for the next generation of liquid-cooled AI pods.

Risks and Challenges

Despite the bullish narrative, Coherent faces several hurdles:

1. China Exposure: While reducing its reliance, Coherent still maintains significant manufacturing and sales exposure in China, making it vulnerable to ongoing trade tensions and export controls.
2. Cyclicality: The industrial laser and OLED display markets remain highly cyclical and sensitive to global GDP growth, which can drag on the high-growth Networking segment.
3. The "Efficiency" Risk: As demonstrated in early February 2026, breakthroughs in AI software that require less hardware could lead to sudden shifts in investor sentiment, even if the long-term infrastructure trend remains intact.

Opportunities and Catalysts

Looking forward into the remainder of 2026, several catalysts remain:

• OFC 2026 Conference: The upcoming Optical Fiber Communication conference in March is expected to be a showcase for Coherent’s 3.2T transceiver roadmap.
• Silicon Carbide (SiC) Expansion: As the electric vehicle (EV) market enters a second wave of adoption, Coherent’s SiC substrate business is poised for a recovery, providing a diversified growth engine.
• M&A Potential: With a cleaner balance sheet, rumors have begun to circulate about Coherent potentially acquiring specialized software-defined networking firms to further integrate their hardware stack.

Investor Sentiment and Analyst Coverage

Wall Street sentiment is overwhelmingly positive, with the median price target sitting at $250.00 as of late February. Major institutional investors, including Vanguard and BlackRock, have increased their positions over the last two quarters.

Analyst notes frequently highlight the "Anderson Premium," suggesting that the CEO’s track record of execution at Lattice is being applied successfully here. Retail sentiment remains high, often fueled by Coherent’s proximity to the "NVIDIA ecosystem."

Regulatory, Policy, and Geopolitical Factors

Coherent is a major beneficiary of the U.S. CHIPS and Science Act. Its investment in the Sherman, Texas facility received federal support, aligning the company with the national priority of "reshoring" critical high-tech manufacturing. However, this also puts Coherent in the crosshairs of potential retaliatory measures from Beijing, particularly regarding its supply of engineered materials used in the Chinese telecom sector.

Conclusion

Coherent Corp. has successfully transitioned from a complex materials company to a focused leader in the AI networking space. By early 2026, the company has proven that it can execute on a massive scale, leveraging its vertical integration and the "Anderson Era" operational improvements to outpace the broader market.

While the "DeepSeek shock" of early February served as a reminder of the volatility inherent in the AI sector, the fundamental demand for faster connectivity remains the most compelling tailwind in the technology industry. For investors, the key will be monitoring the 1.6T ramp and the company's ability to maintain its margin expansion as competition from Lumentum and Asian manufacturers intensifies. As it stands on February 23, 2026, Coherent is no longer just a participant in the AI story—it is the very fiber that holds it together.

This content is intended for informational purposes only and is not financial advice.