Coherent Reports Solid Earnings. Stock Drops on Guidance.

Optical fiber cables connected servers inside a modern big data center room (Tpibernik / Dreamstime)

Coherent reported solid fourth-quarter earnings results on Wednesday afternoon, but its shares slid after its revenue outlook missed projections.

Adjusted earnings per share rose to $1.00 versus Wall Street’s consensus estimate of 92 cents, according to FactSet, and up from 61 cents last year. Revenue for the quarter reached $1.53 billion, ahead of expectations for $1.51 billion, and up 16% over last year, and up 23% for fiscal 2025.

But Coherent’s revenue outlook for the first quarter came up short of projections, and the stock was down almost 20% in early trading on Thursday.

This continues a recent pattern of tech stocks being clobbered after an earnings miss.

Coherent’s networking segment, downwind from the AI data center investment boom, saw fourth-quarter revenue up 39% over 2024 to $945 million, above expectations for $940 million. That was offset by the other two business lines, materials and lasers, down a combined 8% year over year.

A few minutes before the earnings release, Coherent announced the sale of its laser business for defense end markets for $400 million, which will be used to pay of part of the company’s $3.7 billion in debt.

The sale adds a wrinkle to Coherent’s revenue guidance shortfall. The deal will close in the first quarter, so the miss can be entirely explained by the $20 million in quarterly revenue that the company estimates the defense laser business would have earned after the sale is completed.

Though results exceeded expectations, it wasn’t enough for analyst Vivek Arya of Bank of America.

Arya told clients in a note Thursday that though revenue growth and adjusted gross profit margin came in above his projections, growth was decelerating, and the margin still wasn’t high enough.

The analyst raised his price target from $92 to $105, but lowered his rating from a Buy to Neutral.

The biggest 2025 driver in the stock market has been the investment in AI data centers, spiraling into hundreds of billions of dollars worldwide. Coherent benefits from the high-bandwidth optical networking that these data centers are now just beginning to require as they scale up to massive proportions.

A future driver could be Coherent’s inclusion as a supplier for AI-leader Nvidia’s new optical networking switches, announced in March. Optical networking provides advantages over traditional copper wiring, but each connection uses electricity, and that adds up quickly in giant data centers, which are already filled with power-hungry AI servers.

Nvidia sees a future for optical networking if the energy costs can be reduced, and its new switches are a first step in that direction being 3.5 times more energy efficient than the usual optical switch setup. Over time, this could become a larger portion of the hundreds of billions of dollars being spent on new data centers, and Coherent may get swept up in that.

But meanwhile, Coherent’s optical networking business is doing just fine.

Write to Adam Levine at adam.levine@barrons.com