Coherent (NYSE:COHR) reported stronger third-quarter revenue on Wednesday, supported by rising demand tied to AI data center infrastructure and communications markets.
The company generated quarterly revenue of $1.81 billion, up 21% from a year earlier and slightly ahead of the analyst consensus estimate of $1.78 billion.
Despite the revenue beat, shares fell around 3% in premarket trading Thursday as investors focused on slower-than-expected margin improvement.
AI infrastructure demand continues to drive growth
“As AI datacenter infrastructure continues to scale, we are rapidly expanding capacity to meet demand. With the breadth of our photonic technology portfolio and our manufacturing scale, we believe Coherent is uniquely well positioned to capitalize on this multi-year growth opportunity,” said Jim Anderson, CEO of Coherent.
On an adjusted basis, the company posted earnings per share of $1.41, matching analyst expectations.
Adjusted gross margin increased by 105 basis points year-over-year to 39.6%.
Analysts focus on margin progression
Analysts at Barclays said, “GMs are only up ~100bps Y/Y in March despite more DC revenue, business exits, and volume increases.”
“We think this will continue to be a point of focus, but COHR is pushing in the right direction and is well positioned for the upcoming AI capex buildout,” they added.
Stifel analysts also highlighted gross margin trends as a key concern among investors following the company’s quarterly report.
While acknowledging that margins continue to improve, the analysts said incremental gains “does not appear to reflect y/y revenue growth and other factors such as improving 6-in yields and exits from lower margin businesses.”
Over the longer term, Stifel said it believes “an improving margin trajectory is durable.”
Datacenter and communications lead segment growth
The datacenter and communications business remained Coherent’s primary growth engine during the quarter, generating $1.36 billion in revenue.
Meanwhile, industrial segment revenue declined compared with the prior year period.
Fourth-quarter guidance comes in ahead of expectations
For the fourth quarter, Coherent forecast revenue between $1.91 billion and $2.05 billion, above the analyst consensus estimate of $1.9 billion.
The company also projected continued margin expansion and earnings growth, reflecting confidence in sustained demand across AI and communications infrastructure markets.
More about Coherent
Coherent develops photonics and laser technologies used across industries including telecommunications, semiconductors, industrial manufacturing, and AI data centers. The company supplies optical networking components, lasers, and advanced materials that support high-speed data transmission and next-generation computing infrastructure.