Coherent Stock Falls 23% This Year. AI To The Rescue?

Core Insights - Coherent stock (NYSE:COHR) has decreased by nearly 23% year-to-date in 2025 due to a mixed macroeconomic environment and cautious near-term forecasts, despite robust fundamental performance [2] - Revenue for Q3 increased by 24% year-over-year to $1.5 billion, with earnings per share rising to $0.91, an increase of $0.53 compared to last year [2] - The company is focusing on AI products, with revenue from its 800G model for ultra-fast data transmission increasing nearly 80% sequentially to nearly $200 million [2] Financial Performance - Coherent's price-to-sales (P/S) ratio is 2.2, compared to 3.0 for the S&P 500, indicating it may be slightly undervalued [3] - Revenue growth has averaged 22.1% over the past three years, with a 21.7% increase from $4.6 billion to $5.6 billion in the last 12 months [3] - Operating income over the last four quarters was $467 million, resulting in an operating margin of 8.4%, lower than the S&P 500's 13.2% [4] Margins and Future Outlook - Operating cash flow (OCF) reached $666 million, with an OCF margin of 11.9%, also below the S&P 500's 14.9% [4] - Adjusted gross margins increased to 38.5%, reflecting a rise of approximately 490 basis points year-over-year, with a target of 40% margins in the near future [4] - The industrial laser division is expected to gain traction as demand for advanced lasers grows, supported by a global manufacturing presence across approximately 60 locations in 14 countries [5]