Key Takeaways
Bank of America raised its price target on Coherent (NYSE:COHR) to $400 from $365, maintaining a Neutral rating after increasing its forecast for the total addressable market for AI data center systems by $300 billion.
The firm’s thesis hinges on a bigger AI infrastructure pie, asserting that 2026 and 2027 will be years of accelerating AI-related sales and investment returns as new computing architectures are deployed. For Coherent, its optical components are the critical plumbing inside AI data centers, handling high-bandwidth data movement that copper cannot.
The analyst action at Bank of America reflects a thematic call on the AI sector, as the firm made same-day price target hikes across several AI infrastructure names.
Coherent stock has rallied approximately 97% year-to-date, which helps explain the firm's decision to maintain a Neutral stance despite the improved outlook. The stock trades at a rich 45 times forward earnings, and while Q4 guidance for $1.91 billion to $2.05 billion in revenue suggests momentum, risks include a 16% year-over-year decline in its industrial segment and over $3.1 billion in long-term debt.
The surge in optical networking stocks has been a primary theme in 2026, with Coherent’s performance trailing some pure-play peers. Applied Optoelectronics (NASDAQ:AAOI) has gained 441% year-to-date, while Lumentum (NASDAQ:LITE) is up 166% over the same period. Coherent's more diversified business, which includes a significant industrial segment, has resulted in steadier but less explosive growth compared to its rivals.
Coherent's strategic position is bolstered by a significant partnership with Nvidia (NASDAQ:NVDA), which includes a $2 billion investment to support U.S. manufacturing of next-generation optical components. This relationship solidifies Coherent's role in the supply chain for the leading AI accelerator company. The company’s Datacenter & Communications segment generated $1.361 billion in fiscal Q3 2026, up 41% year-over-year, now accounting for 75% of total revenue.
The price target increase validates the long-term AI optical thesis for Coherent, but the Neutral rating signals that much of the optimism is already reflected in the stock's price. Investors will watch the upcoming Q4 fiscal 2026 earnings report for confirmation that demand is translating into sustained profitable growth.
This article is for informational purposes only and does not constitute investment advice.
