Core Viewpoint - Coherent reported record revenue of $1.69 billion for Q2 2026, a 17% year-over-year increase, driven by strong demand from AI data center construction, despite a 2.36% drop in stock price post-earnings due to high market expectations leading to profit-taking [1][4][7]. Financial Performance - Adjusted EPS for Q2 was $1.29, exceeding market expectations of $1.22, with revenue surpassing expectations and setting a quarterly record [4][11]. - Revenue growth was 9% quarter-over-quarter and 22% year-over-year when excluding recently divested aerospace and defense business [58]. - Non-GAAP gross margin for Q2 was 39%, reflecting a 24 basis point increase quarter-over-quarter and a 77 basis point increase year-over-year [58]. Business Segments Data Center and Communication - The data center and communication segment, accounting for over 70% of revenue, saw a 14% quarter-over-quarter and 36% year-over-year revenue increase, driven by strong demand for 800G and 1.6T transceivers [41][42]. - The order shipment ratio for data center business exceeded 4 times, indicating robust demand and long-term visibility extending into 2027 [4][44]. Product Development - Coherent is accelerating the rollout of 1.6T optical modules, with initial demand driven by EML and silicon photonics solutions, and expects significant growth in the second half of the year [21][22]. - The company is expanding its 6-inch indium phosphide (InP) production capacity, achieving 80% of its target capacity for doubling by year-end, which is crucial for meeting demand [26][24]. Strategic Initiatives - Coherent secured a significant CPO (Co-Packaged Optics) order from a leading AI data center client, indicating a shift from concept to substantial deployment [30][31]. - The OCS (Optical Circuit Switch) platform has over 10 clients, with a growing backlog, suggesting a market opportunity exceeding previous estimates of $2 billion [34][51]. Market Outlook - The company anticipates continued strong revenue growth in Q3, projecting revenue between $1.7 billion and $1.84 billion, with non-GAAP gross margins expected between 38.5% and 40.5% [63]. - The ongoing demand for high-speed optical interconnects is expected to drive significant growth in both 800G and 1.6T transceivers throughout 2026 [20][21].