"Optical module giant" Coherent's Q2 report is strong, but guidance is slightly disappointing, and the stock price plummets after hours

Boosted by its core network business, Coherent's second-quarter key performance indicators exceeded expectations, but revenue guidance fell short of expectations. On Wednesday, optical module giant Coherent announced its fourth-quarter and full-year financial report for the period ending June 30. The report showed that the company's fourth-quarter revenue increased by 16% year-over-year to $1.53 billion, setting a record high; adjusted earnings per share reached $1.00, surpassing Wall Street's expectation of 92 cents. Notably, benefiting from the AI data center investment boom, the company's network business revenue surged 39% year-over-year to $945 million. However, Coherent expects next quarter's revenue to be between $1.46 billion and $1.6 billion, a guidance that did not meet analysts' expectations, raising concerns among investors. Just minutes before the earnings report was released, the company also announced the sale of its defense laser business for $400 million, with the proceeds to be used to pay down part of the company's $3.7 billion debt. After the earnings report was released, Coherent's stock price plummeted 19% in after-hours trading. Strong Demand for AI Data Centers Fuels Robust Growth in Network Business Coherent's network business directly benefited from the AI data center investment boom, with fourth-quarter revenue reaching $945 million, a significant year-over-year increase of 39%, exceeding the expected $940 million. This growth was primarily driven by strong demand for high-bandwidth optical network equipment from AI data centers. In a subsequent conference call, the company's management stated that the demand from data centers is "very strong," especially for 100/400/800Gb/s optical modules. Moreover, this demand mainly comes from "traffic across multiple data centers," rather than traffic within a single data center. In contrast, the company's other two business segments performed poorly. The materials and laser businesses combined saw an 8% year-over-year decline, offsetting the strong performance of the network business. Regarding the demand outlook, Coherent also believes this outlook is very strong, expecting data center and communication businesses to see sequential growth again this quarter. The growth drivers mainly include: 800Gb/s optical modules (which will continue to grow during 2025-2026), 1.6Tb optical modules, optical circuit switches, and sustained strong growth in data center interconnect business. Potential Collaboration with NVIDIA May Open Long-Term Growth Opportunities Some media opinions suggest that a significant driver of Coherent's future growth may be becoming a supplier of new optical network switches for AI leader NVIDIA. Optical networks have advantages over traditional copper wires, but each connection requires power, and this cost accumulates rapidly in large data centers filled with power-hungry AI servers. NVIDIA believes that if energy costs can be reduced, optical networks will have broad prospects, and its new switches are the first step in that direction. In March of this year, NVIDIA announced that its new switches are 3.5 times more energy-efficient than traditional optical switch setups As time goes on, this could become a larger component of the hundreds of billions of dollars spent on new data centers, and Coherent may benefit from it