Coherent’s transceivers have proved useful for data-center connectivity, but a Rosenblatt analyst sees several factors that could stall the stock’s run

Emily BaryOct. 22, 2024 at 10:31 a.m. ET

The Ratings Game

Coherent’s stock has been one of the best-performing AI-related plays this year. Photo: Getty Images

One of the biggest stock beneficiaries of artificial intelligence this year is an optoelectronics company: Shares of Coherent Corp. had surged 133% on the year, through Monday’s close, as the company’s datacom transceivers have proved useful for data-center connectivity.

But Rosenblatt Securities analyst Mike Genovese thinks the rally could take a pause, owing to potential shifts in the transceiver market as well as moves the company could make to unwind portions of a recent acquisition. 

Coherent has a strong position in vertical-cavity surface-emitting lasers, or VCSELs, but Genovese sees room for electro-absorption-modulated lasers, or EMLs, to pick up market share in the new fiscal year thanks to technological advancements. 

In the data-center market, 800 gigabit transceivers help facilitate connectivity, and he noted that 100G-per-lane VCSELs featured into the majority of these shipped transceivers during fiscal 2024. But new EMLs support 200G-per-lane technologies, which could help that format find increasing adoption. 

“There don’t appear to be any real (non-slideware) 200G-per-lane VCSEL
samples that can actually be tested,” Genovese continued. He cut his rating on Coherent shares to neutral from buy, though he also lifted his price target to $105 from $84 in light of recent upward action.

Lumentum Holdings Inc. could be a better optical play on current trends, he noted, as it’s “both a long-term winner and near-term share gainer due to leadership in EMLs.”

He also wonders if the company will begin to divest businesses in an attempt to walk back an industrial-lasers acquisition that lessened the overall company’s exposure to networking. 

“We believe the prior CEO was relieved of his duties by the Board for overpaying for the Coherent industrial lasers acquisition, diversifying too much away from [data-communications] optics, and failing to deleverage the 

As such, Coherent might take a conservative tack with its outlook “due to slower 800G/[1.6 terabit] growth, exposure to certain industrial businesses where demand has not recovered yet, and management’s focus on potential industrial products divestitures,” he added.

Coherent shares are down a little more than 1% in Tuesday morning action.