COHR vs. ARM: Which Tech Growth Stock Offers More Upside Now?

Both Coherent Corp. and Arm Holdings plc operate in critical segments of the tech infrastructure ecosystem, but with fundamentally different approaches to innovation and market positioning.

ARM dominates the semiconductor IP landscape, with its architectures powering everything from smartphones to servers and increasingly AI processors. Meanwhile, COHR focuses on photonics, lasers, and optical components that enable the ultra-fast connectivity underpinning today’s data infrastructure. These companies aren’t direct competitors but rather represent different entry points into the tech innovation cycle.

COHR’s Strengths and Challenges

Coherent’s impressive 51% revenue growth in fiscal 2025 speaks volumes, particularly its data center business which surged 61%. The company’s initial shipments of advanced 1.6T transceivers mark just the beginning of what could be exponential growth as AI workloads drive hyperscale data center expansion.

I’m particularly impressed by their aggressive innovation timeline - they’re already developing 3.2T transceivers while simultaneously investing in co-packaged optics technologies. This positions them perfectly at the intersection of AI and data infrastructure.

Their tripling of indium phosphide production capacity and implementation of the world’s first 6-inch production line isn’t just about scale - it’s about driving down costs while maintaining performance advantages. Smart move in an increasingly competitive landscape.

However, the Silicon Carbide arena presents significant challenges. Wolfspeed and ON Semiconductor are formidable competitors who aren’t just participating in the market - they’re actively reshaping it. Wolfspeed’s leadership in wafer technology and ON’s dominance in MOSFET solutions create a brutal competitive environment that could squeeze COHR’s margins and market share.

ARM’s Position and Vulnerabilities

ARM’s power-efficient chip architectures remain essential to mobile computing, with designs powering devices from Apple, Qualcomm and Samsung. Their ability to balance performance with energy efficiency gives them a strong competitive moat.

The company is positioning itself well in AI and IoT, with major tech players increasingly dependent on ARM’s architecture for everything from wearables to data centers. As embedded AI models become ubiquitous, ARM stands to benefit substantially.

Yet I worry about ARM’s significant exposure to China, its second-largest market. The growing adoption of RISC-V, an open-source alternative, threatens ARM’s dominance as Chinese companies shift away from foreign chip technologies. With the Chinese government likely to formally promote RISC-V development, this headwind could intensify.

ARM’s potential move into producing its own CPUs strikes me as particularly risky. While it could expand their addressable market, it also transforms them into direct competitors with their largest customers. Poaching talent from these same clients only exacerbates tensions. This strategy could backfire spectacularly, jeopardizing existing licensing revenues and compressing gross margins as manufacturing costs kick in.

Growth Projections and Valuation

COHR’s fiscal 2026 outlook shows 9% sales growth and 29% EPS growth, with estimates trending upward. ARM’s projections indicate 18% revenue growth but only 3% EPS growth, with estimates moving downward.

Valuation tells an interesting story: COHR trades at a forward P/E of 22.26X versus its median of 26.29X, suggesting potential upside. ARM’s lofty 72.07X forward P/E (below its median of 124.5X) reflects high growth expectations, but leaves little room for error if execution falters.

The Verdict: COHR Edges Out ARM

Between these two innovation-driven companies, I’m more convinced by Coherent’s positioning. Their tangible progress in data center optics, transceivers, and optical circuit switches demonstrates real-world execution amid the AI infrastructure boom. While facing competition in SiC, their diversified approach provides multiple growth avenues.

ARM’s mounting risks in China, the RISC-V threat, and potential channel conflicts from their hardware ambitions create too many uncertainties for my taste. Despite ARM’s impressive architecture dominance, Coherent’s clearer growth path and more reasonable valuation make it the stronger investment case right now.