Coherent's Results and Guidance Validate the High-Speed Optical Interconnect Upcycle

Overview

Based on Coherent's results through the quarter ended June 2026, this report tracks AI data center optical interconnect demand and changes in the optical component supply chain. Management's disclosures on high-speed optical module demand, InP capacity expansion, and the commercialization timetable for new products support the view that the industry upcycle will continue.

Core views

The report believes that demand for 800G and 1.6T optical modules remains strong, validating the ongoing upcycle in high-speed optical transceivers. Coherent is accelerating the buildout of 6-inch InP capacity and improving supply and profitability through higher yields and lower costs. CPO/NPO, OCS, and multi-rail systems will become subsequent sources of incremental revenue, with initial CPO revenue expected in the December 2026 quarter and significant OCS growth expected in FY27E.

Analysis framework

The analysis centers on Coherent's results, operating guidance, capacity progress, and management commentary on end-market demand, using these as cross-validation signals for the AI data center optical module, optical engine, and optical component supply chains.

Methodology notes

• Supply Chain TrackingEarnings Read-Through

  Validating demand in a related supply chain through the results and guidance of upstream or peer companies

  Coherent's commentary on demand and capacity for 800G, 1.6T, CPO, and OCS is used to assess the business cycle trend in the optical communications supply chain.

• Valuation methodsPrice-to-Earnings Valuation

  Determining a target price by multiplying forward earnings per share by a target P/E multiple

  TFC Optical Communication's target price is CNY282.00, based on 2026F EPS of CNY5.63 and a 50x P/E multiple, with reference to the median valuation of the WIND China A-share CPO sector.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• COHERENT CORP（US.COHR）

  Earnings Read-Through Subject

  Strengths

  High growth in the data center business; yield and cost advantages of the 6-inch InP production line; expansion into CPO, OCS, and multi-rail systems.

  Weaknesses

  InP capacity remains the primary supply constraint, and execution of the new capacity ramp will determine growth realization.

  Comparison

  Consistent with Lumentum's earnings commentary, both point to strong demand for 800G and 1.6T optical transceivers.

  Risks

  Changes in customer demand, capacity expansion falling short of expectations, and slower-than-expected commercialization of new products.

• Innolight（300308 CH）

  Beneficiary

  Strengths

  Considered a leading global optical module supplier with the ability to secure upstream components.

  Weaknesses

  The report does not provide current earnings data.

  Comparison

  Benefits from the same upswing in demand for 800G and 1.6T optical modules as Coherent.

  Risks

  Weaker-than-expected demand for optical components and modules, supply chain changes, and intensifying competition.

• TFC Optical Communication（300394 CH）

  Beneficiary

  Strengths

  Its optical engine and optical component businesses are expected to benefit from accelerated CPO and OCS commercialization.

  Weaknesses

  Sensitive to downstream customer strategies and the evolution of optical communications technology.

  Comparison

  Target price of CNY282.00, above the August 13, 2026 closing price of CNY257.16.

  Risks

  Weak demand for optical components/modules, technological changes that weaken competitiveness, strategic changes by major customers or supply chain diversification, and geopolitical risks.

Key data

• Coherent FY26 RevenueUSD7.0 billion, +28% year on yearA record level.
• Coherent Fourth-Quarter Revenue Growth+14% quarter on quarter, +42% year on yearDriven by customer demand and rapid capacity expansion.
• Data Center Business Growth+41% year on year in FY26; +24% quarter on quarter and +66% year on year in the fourth quarterPrimarily driven by 800G/1.6T optical modules and OCS.
• FY27 First-Quarter Revenue GuidanceUSD2.2 billion to USD2.4 billionNon-GAAP gross margin guidance is 39.5% to 41.5%.
• 6-Inch InP CapacityTarget output to double year on year this quarter, and to more than double again by the end of 2027Progress is one quarter ahead of the original plan.
• CPO Commercialization TimelineInitial revenue recognition beginning in the December 2026 quarter, with broader adoption in the second half of 2027Customer engagement with CPO and NPO has increased significantly over the past three to six months.
• OCS Addressable MarketMore than USD4.0 billionCovers data center interconnect, scale-out, and scale-up networks.
• TFC Optical Communication Target PriceCNY282.00Closing price of CNY257.16 on August 13, 2026; rated Buy.

Impact & implications

For the optical communications supply chain, simultaneous strengthening in InP supply expansion and demand for high-speed products benefits companies with secured upstream components, optical engine capabilities, and optical component capabilities. The report explicitly favors Innolight's position as a global optical module supplier and believes that accelerating commercialization of CPO and OCS will benefit TFC Optical Communication's optical engine and optical component businesses.

Risks

• Demand for optical components and optical modules is weaker than expected.
• InP capacity ramp-up, yields, or cost improvements fall short of expectations.
• Commercialization of CPO, OCS, and multi-rail systems is delayed.
• Changes in major customer strategies or supply chain diversification.
• Technological iteration in optical communications weakens the competitiveness of relevant companies.
• Geopolitical developments and potential trade restrictions create uncertainty.

What to watch

• Whether Coherent's FY27 first-quarter revenue and non-GAAP gross margin meet guidance.
• The doubling of 6-inch InP capacity, yield performance, and plans for additional capacity in 2027.
• Continued growth in 800G revenue and the pace of 1.6T volume ramp from the second half of 2026 through 2027.
• CPO revenue recognition in the December 2026 quarter and scaled adoption in the second half of 2027.
• OCS orders and the realization of FY27E revenue growth.
• The response of TFC Optical Communication's optical engine and optical component orders to CPO and OCS demand.