• Earlier this week, Coherent Corp. signed a letter of intent to receive up to US$50 million under the CHIPS and Science Act to expand its 6‑inch indium phosphide semiconductor facility in Sherman, Texas, doubling manufacturing space and quadrupling wafer capacity for AI datacenter optical networking technologies.
• This government-backed expansion, coupled with a deepening partnership with NVIDIA, underlines Coherent’s role in reinforcing U.S. supply chain resilience for advanced photonics and high-speed AI connectivity.
• We’ll now examine how this CHIPS-funded Sherman capacity expansion could influence Coherent’s AI-centric investment narrative and future growth assumptions.

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Coherent Investment Narrative Recap

To own Coherent, you need to believe AI data center optics and high speed photonics remain a durable growth engine while the company executes heavy capacity build outs without eroding returns. The CHIPS backed Sherman expansion directly supports that thesis by scaling 6 inch InP output, but it also amplifies the near term capital intensity risk and raises the stakes around demand timing and utilization, which are key short term catalysts and swing factors for the stock.

The most relevant prior announcement is NVIDIA’s multiyear agreement and planned US$2 billion investment tied to Coherent’s optics capacity and R&D. Together with the CHIPS funding, it frames Sherman as a critical node in NVIDIA’s AI supply chain, reinforcing the bull case that Coherent’s expanded InP and module footprint could be absorbed by long horizon customer road maps, while still leaving open questions about how quickly that order visibility converts into sustained earnings power.

But while the story sounds compelling, investors should also understand how overbuilding AI optics capacity and slower hyperscaler capex could...

Coherent's narrative projects $15.7 billion revenue and $2.6 billion earnings by 2029.

Uncover how Coherent's forecasts yield a $384.45 fair value, in line with its current price.

Exploring Other Perspectives

Some of the lowest ranked analysts were already assuming only about 11.6 percent annual revenue growth and US$735.0 million of 2028 earnings, which is far more cautious than the consensus and highlights how differently you might view risks like over investment in AI optics capacity after this CHIPS news, so it is worth comparing these more pessimistic scenarios with your own expectations.

Explore 5 other fair value estimates on Coherent - why the stock might be worth 46% less than the current price!

Form Your Own Verdict

Disagree with existing narratives? Extraordinary investment returns rarely come from following the herd, so go with your instincts.

• A great starting point for your Coherent research is our analysis highlighting 2 key rewards and 3 important warning signs that could impact your investment decision.
• Our free Coherent research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate Coherent's overall financial health at a glance.

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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.