Research Report Interpretation: When CPO Breaks Out, What Move Is Coherent Making?

Author: Rita

Tide Guide Reading

J.P. Morgan analyst Samik Chatterjee reiterated an overweight rating on Coherent (NYSE: COHR) at a recent investor conference. The company specializes in optical communication chips and devices, and the market underestimates its growth potential. The core logic is based on three lines: optical transceivers for data centers, co-packaged optical (CPO) chips, and lasers and heat dissipation in industrial fields.

Data communication transceivers, demand continues to rise

Let's first look at the most mature business line. COHR's 1.6T transceivers are now standard in data centers, and the demand remains strong. The demand for 1.6T has already arrived, and the pricing environment is healthy, with no obvious pressure. Some worry that CPO will take business away from traditional transceivers, but analysts believe the opposite is true. CPO integrates optical and electrical chips, which will increase demand for high-end optical components rather than replace existing ones.

CPO and OCS, underestimated opportunities

CPO is now a hot industry topic, with all major chip manufacturers researching it. COHR's competitive advantage lies in offering a complete optical component portfolio. Lasers, isolators, VCSELs, thermoelectric coolers—all are available. The optical components needed in CPO systems are mostly covered by COHR. This means that for each CPO chip, the value space COHR can capture is much larger than that of traditional transceivers.

The target market size for OCS optical path switches is $4 billion, and use cases are expanding. From internal data center traffic optimization to inter-data center connectivity, and even scale-up scenarios. COHR uses LCD technology, comparable to MEMS solutions, with clear advantages in reliability and power consumption.

InP capacity, the foundation for upstream integration

COHR plans to increase InP (indium phosphide) device capacity fourfold within two years. Transitioning to 6-inch wafers is underway, with yields better than mature processes. The company has signed agreements with five substrate suppliers to secure supply, and the main bottleneck for capacity expansion has been addressed.

Pump lasers are currently in tight supply; COHR is one of only two high-quality suppliers globally, holding 70% market share for certain models. The tight supply environment presents a strategic opportunity for the company: upstream integration. Previously only selling laser devices, now it can sell complete line cards or systems. The average selling price of a single solution can increase by more than ten times.

Gross margin targets raised, cost structure improving

The company reaffirmed a gross margin target above 42%, hinting at potential upward revisions. The drivers include premium pricing for high-end products, cost improvements from transitioning to 6-inch wafers, and volume growth of high-margin new products like CPO and OCS. The efficient heat dissipation material thermadite is 2 to 5 times more effective than copper cooling solutions and represents a long-term growth point.

Industrial sector, an overlooked growth point

Industrial revenue growth rate remains between 5% and 10%. Orders for semiconductor process equipment are increasing. In 3D sensing, Apple’s next-generation Face ID may adopt new protocols, providing suppliers with a chance to re-compete.

Optical communication chips are the infrastructure backbone of data centers. AI boosts computing power demand, which in turn drives demand for high-speed optical interconnects. COHR’s position in this industry chain is critical; new opportunities in CPO and OCS, stable growth in industrial fields, and room for gross margin improvement all support an overweight view.

Disclaimer

This article is a compilation and interpretation of third-party brokerage research reports by Tide Research. The ratings, target prices, profit forecasts, and related judgments quoted are the views of J.P. Morgan analysts, representing only their institutional stance, not Tide Research’s views, nor any investment advice.

Please note three points when reading: 1. Ratings are analysts’ comprehensive judgments on the company's prospects and may be adjusted repeatedly based on performance and market conditions. 2. Sell-side research reports tend to be optimistic, and some coverage companies have investment banking relationships with the broker. 3. The value of the research report lies in its core logic and underlying assumptions, not in any specific target price. Focus on the logic, not just the rating.

Markets carry risks; decision-making should be independent. This article should not be used as a basis for buying or selling any securities.

Data source: Coherent Corp investor conference minutes (J.P. Morgan, Samik Chatterjee, June 22, 2026)

Tide Research · TideResearch · June 2026