Why Coherent’s CHIPS backed expansion matters for investors

Coherent (COHR) is drawing fresh attention after securing a letter of intent for up to US$50 million in CHIPS and Science Act funding to expand its indium phosphide semiconductor facility in Sherman, Texas.

The project is designed to double production space and quadruple wafer capacity for AI related optical networking, connect to a US$2 billion collaboration with NVIDIA, and address supply bottlenecks as AI datacenter build outs continue.

Despite a recent pullback, including a 1 day share price return of down 6.55% and sector wide pressure on AI exposed hardware stocks, Coherent still shows strong momentum, with a 90 day share price return of 56.30% and a 1 year total shareholder return above 300%. This suggests investors have rapidly repriced its role in AI infrastructure as news around the CHIPS funding and NVIDIA partnership has emerged.

If Coherent’s AI optics story has caught your attention, it can be useful to see what else is moving in this theme by scanning 51 AI infrastructure stocks

After a 1 year total shareholder return above 300% and a share price that sits only about 1% below the average analyst target, the key question on Coherent is simple: is there still upside here or has the market already priced in future growth?

Most Popular Narrative: 1% Undervalued

Coherent’s most followed narrative pegs fair value at about $384.45, slightly above the last close of $380.56. This puts a microscope on what is driving that gap.

The ongoing expansion of AI datacenter infrastructure and high-performance computing is propelling structural growth in demand for advanced optical transceivers (800G, 1.6T, and beyond), optical circuit switches, and related photonics components, which is fueling robust sequential order growth and sustained revenue momentum in Coherent's datacom and communications business.

Read the complete narrative. Read the complete narrative.

Want to see how Coherent’s AI optics contracts, margin assumptions, and future earnings targets are stitched together into that fair value story? The narrative leans heavily on aggressive revenue scaling, rising profitability, and a premium future earnings multiple that is usually reserved for market leaders.

Result: Fair Value of $384.45 (ABOUT RIGHT)

However, Coherent’s story can shift quickly if AI optical demand slows or co packaged optics adoption timing slips, especially given the heavy capital needs and customer concentration.

Another view on Coherent’s valuation

While the consensus narrative frames Coherent as roughly fairly priced around $384.45, the Simply Wall St DCF model presents a different perspective, with an estimated future cash flow value of about $295.80. That gap suggests investors are paying a premium today, so which set of assumptions do you find more compelling?

Next Steps

With sentiment on Coherent clearly mixed, and with both risks and rewards in play, move quickly to review the underlying data and decide where you stand by checking the 2 key rewards and 3 important warning signs

Looking for more investment ideas beyond Coherent?

Coherent’s story is just one piece of the puzzle, and you do not want to miss other opportunities that might fit your goals even better.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.