Coherent (COHR) stock has wavered since mid-August, in step with the consolidation among leading companies in the artificial intelligence industry. Shares were trading at $309.60 on Friday, about 30% below their high for the year. Even so, the company could benefit from strong demand for its optical solutions, particularly after Lumentum said it was sold out through 2029.
Lumentum says its demand is soaring
In a statement, Michael Hurlston, the head of Lumentum, said that demand for optical solutions continued rising this year. He mentioned that it was fully sold out through 2029 and that it will struggle to meet as much as 70% demand for some of its products through next year.
This is a highly bullish sign for Coherent, a company that makes similar products. Indeed, Lumentum attempted to acquire Coherent in early 2021 in a deal valuing it at $5.7 billion. The deal fell apart after Coherent received a higher offer from II-VI.
The soaring demand for Lumentum’s solutions is a sign that Coherent will continue benefiting from data centers. Its most recent results showed that its demand was soaring, with the quarterly revenue rising to $2.04 billion in the fourth quarter from $1.52 billion in the same period a year earlier.
Analysts expect the company’s revenue growth will continue in the foreseeable future, especially after the launch of its PhotonLink, an integrated optics platform that brings together its broad portfolio of critical photonics technologies. It combines co-packaged (CPO), near-packaged optics (NPO), and chip-to-chip connectivity.
Precisely, analysts expect its first-quarter revenue to jump by 45% to $2.3 billion, with its second-quarter rising by 50.3% to $2.5 billion. For the year, revenue is expected to soar by 50% to $10.6 billion, followed by $14.7 billion next year. Its real figure is expected to be higher than that.
Notably, Coherent trades at a significantly cheaper multiple compared to Lumentum. It has a forward price-to-earnings ratio of 32, much lower than Lumentum’s 48. Similarly, its forward EV/EBITDA of 21.6 is much lower than Lumentum’s 32.
Top Wall Street analysts are highly bullish on Coherent shares. Rosenblatt Securities expects the stock to jump to $500, while Deutsche Bank, Stifel Nicolaus, Raymond James, Needham, and Jefferies expect it to jump to over $400.
Coherent stock technical analysis
The daily chart shows that the COHR stock has remained under pressure in the past few days. A closer look at the chart shows that it has moved slightly above the 100-day Exponential Moving Average (EMA).
The stock has formed an inverted head-and-shoulders pattern, a common bullish reversal sign in technical analysis. This pattern often leads to a reversal. Also, the Supertrend indicator has remained in the green.
Therefore, the stock will likely have a bullish breakout in the coming weeks. If this happens, it may rebound to the next key target at $440, up by 41% from the current level.