Core Viewpoint - Coherent reported strong financial results for Q2 FY2026, with adjusted EPS of $1.29 and revenue of $1.69 billion, driven by significant demand from AI data centers, although the stock fell 2% post-announcement due to profit-taking pressures [3][11][52]. Financial Performance - Adjusted EPS of $1.29 exceeded market expectations of $1.22, marking a 35% year-over-year increase [11][52]. - Revenue reached $1.69 billion, surpassing expectations and setting a quarterly record, with a year-over-year growth of 22% [11][52]. - Non-GAAP gross margin improved to 39%, reflecting operational efficiencies and cost reductions [52][53]. Demand and Orders - The company experienced a "step-function increase" in orders, particularly in the data center sector, with a book-to-bill ratio exceeding 4 [11][41]. - Demand for 1.6T transceivers is accelerating, with expectations for significant growth in both 800G and 1.6T products throughout 2026 [22][62]. - Most of the 2026 calendar year capacity has been booked, with orders extending into 2027 and even 2028 for some major clients [15][61]. Production and Capacity Expansion - Coherent achieved breakthroughs in 6-inch indium phosphide (InP) production, increasing wafer output by over four times and reducing costs by approximately 50% [6][26]. - The company plans to double its internal InP capacity by the end of this year, with current wafer starts reaching 80% of the target [23][58]. - The strategic shift to 6-inch wafers is expected to enhance supply capabilities and pricing power in the market [27][75]. Product Development and Market Opportunities - Coherent secured a significant CPO (Co-Packaged Optics) order from a leading AI data center client, indicating a shift from concept to substantial deployment [28][45]. - The OCS (Optical Circuit Switching) platform has gained traction, with over 10 clients and a growing backlog, suggesting a market opportunity exceeding $2 billion [32][46]. - The transition from 800G to 1.6T in AI data centers is expected to drive demand for high-bandwidth, low-power interconnect solutions [21][18]. Future Outlook - The company anticipates continued strong revenue growth in the upcoming quarters, driven by robust demand and capacity expansion [36][49]. - Guidance for Q3 FY2026 projects revenue between $1.7 billion and $1.84 billion, with non-GAAP gross margins expected to range from 38.5% to 40.5% [15][60].