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Coherent vs. AppLovin: Which AI Growth Stock is Better Positioned?
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Key Takeaways
Coherent's Datacenter & Communications revenue grew more than 40% year over year in 3Q FY26.
APP is expanding into e-commerce with AI ad tools and a broader advertiser base.
COHR ended fiscal Q3 with $2.5B cash and only $9M in current debt.
Both Coherent (COHR - Free Report) and AppLovin (APP - Free Report) are emerging beneficiaries of the artificial intelligence boom, though from different angles. Coherent supplies optical networking and laser technologies critical for AI data centers, while AppLovin uses AI-driven algorithms to optimize digital advertising and app monetization. Investors are increasingly viewing both as high-growth AI-related opportunities with strong revenue momentum and expanding market relevance.
COHR: Strong AI Demand, Balance Sheet
Coherent continues to benefit from strong AI-driven demand alongside early signs of recovery in its industrial business. In the third quarter of fiscal 2026, the company’s Datacenter & Communications segment contributed 75% of total revenues, improving from 72% in the previous quarter. Revenue growth in the segment exceeded 40% year over year, accelerating from 33.5% in the prior quarter, supported by strong demand and effective execution across its product portfolio. CEO James Anderson stated that rising demand for transceivers and Optical Circuit Switch Systems was a key driver behind the growth.
While the Datacenter & Communications business remains Coherent’s primary growth engine, the industrial segment is also showing encouraging signs of improvement. Although weakness in certain parts of the broader industrial market continued to impact third-quarter fiscal 2026 results, semiconductor capital equipment demand improved significantly, leading to a notable increase in bookings.
Coherent ended the third quarter of fiscal 2026 with cash reserves of $2.5 billion, a significant increase from $899 million in the previous quarter. This strong cash position compares with only $9 million in current debt, reflecting solid liquidity. The company’s current ratio stood at 3.05, well above the industry average of 1.57, highlighting its ability to comfortably meet short-term obligations.
The company also continues to manage long-term debt effectively. Long-term debt totaled $3.1 billion in the third quarter of fiscal 2026, slightly lower than $3.2 billion in the previous quarter. Total debt represented 22.5% of total capital, improving from 27.4% in the prior quarter and remaining well below the industry average of 32.1%. Financial risk also declined, as reflected in the increase in times interest earned to 3.5 from 2.5 in the preceding quarter.
APP: Marketplace Strength, E-Commerce Expansion
AppLovin’s integrated marketplace continues to deliver strong results. Its MAX platform, paired with Axon 2.0 AI enhancements, is improving bid density and advertiser matching. This has translated into solid operating momentum through late 2025, with management expressing confidence in continued sequential growth into early 2026 despite typical seasonal softness.
A major long-term opportunity lies in improving conversion rates. Management believes these can gradually move toward roughly 5% from historical low single-digit levels. This would be driven by better AI models and increased advertiser diversity, especially beyond gaming. As more bidders enter the ecosystem, AppLovin benefits from take-rate mechanics, even on lower-value impressions, supporting steady share gains.
AppLovin is increasingly targeting web and e-commerce advertisers. Its self-serve Axon Ads platform is currently referral-only but is expected to become widely available in the first half of 2026. Generative AI features, including an interactive page generator and upcoming video ad tools, are designed to streamline onboarding and boost campaign performance.
This push into e-commerce could significantly expand AppLovin’s addressable market, helping it compete more directly with The Trade Desk in broader digital advertising while reducing reliance on gaming. Still, Unity Software remains a massive competitor within the gaming ecosystem, making diversification crucial for AppLovin’s long-term growth.
One of AppLovin’s biggest strengths is profitability. The company reported an adjusted EBITDA margin of about 84% in the fourth quarter of 2025, alongside free cash flow of roughly $1.3 billion. This highlights strong operating leverage and efficient cost management. Management expects similar margin levels in the first quarter of 2026, signaling durability even as the business expands into new verticals. Importantly, any increase in performance marketing spend is expected to remain ROI-driven, with early tests showing quick payback periods.
How Do Zacks Estimates Compare for COHR & APP?
The Zacks Consensus Estimate for APP’s 2026 sales indicates year-over-year growth of 42%, and that for earnings indicates a year-over-year increase of 58%. EPS estimates have been trending upwards over the past 60 days.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for COHR’s 2026 sales and EPS indicates year-over-year growth of 21.5% and 55%, respectively. EPS estimates have been trending upwards over the past 60 days.
Image Source: Zacks Investment Research
COHR’s Valuation More Attractive Than APP
COHR is trading at a forward price-to-sales multiple of 8.02X, above its 12-month median of 3.64X. APP’s forward price-to-sales multiple stands at 20.63X, below its median of 21.57X.
Coherent Appears Better Positioned
Coherent appears better positioned for investors seeking a more balanced AI growth opportunity. The company is benefiting from rising demand for AI infrastructure while also showing early signs of recovery in its industrial business, creating multiple growth drivers. Its strong liquidity position and improving debt profile further strengthen confidence in its long-term outlook. Although AppLovin continues to deliver impressive profitability and advertising momentum, its premium valuation and competitive pressures in digital advertising may limit upside potential.
With the stocks carrying a Zacks Rank #3 (Hold) each at present, Coherent’s diversified growth profile and relatively attractive valuation give it the edge.
View the Zacks #1 Rank List
Image: Bigstock
Coherent vs. AppLovin: Which AI Growth Stock is Better Positioned?
Key Takeaways
Both Coherent (COHR - Free Report) and AppLovin (APP - Free Report) are emerging beneficiaries of the artificial intelligence boom, though from different angles. Coherent supplies optical networking and laser technologies critical for AI data centers, while AppLovin uses AI-driven algorithms to optimize digital advertising and app monetization. Investors are increasingly viewing both as high-growth AI-related opportunities with strong revenue momentum and expanding market relevance.
COHR: Strong AI Demand, Balance Sheet
Coherent continues to benefit from strong AI-driven demand alongside early signs of recovery in its industrial business. In the third quarter of fiscal 2026, the company’s Datacenter & Communications segment contributed 75% of total revenues, improving from 72% in the previous quarter. Revenue growth in the segment exceeded 40% year over year, accelerating from 33.5% in the prior quarter, supported by strong demand and effective execution across its product portfolio. CEO James Anderson stated that rising demand for transceivers and Optical Circuit Switch Systems was a key driver behind the growth.
While the Datacenter & Communications business remains Coherent’s primary growth engine, the industrial segment is also showing encouraging signs of improvement. Although weakness in certain parts of the broader industrial market continued to impact third-quarter fiscal 2026 results, semiconductor capital equipment demand improved significantly, leading to a notable increase in bookings.
Coherent ended the third quarter of fiscal 2026 with cash reserves of $2.5 billion, a significant increase from $899 million in the previous quarter. This strong cash position compares with only $9 million in current debt, reflecting solid liquidity. The company’s current ratio stood at 3.05, well above the industry average of 1.57, highlighting its ability to comfortably meet short-term obligations.
The company also continues to manage long-term debt effectively. Long-term debt totaled $3.1 billion in the third quarter of fiscal 2026, slightly lower than $3.2 billion in the previous quarter. Total debt represented 22.5% of total capital, improving from 27.4% in the prior quarter and remaining well below the industry average of 32.1%. Financial risk also declined, as reflected in the increase in times interest earned to 3.5 from 2.5 in the preceding quarter.
APP: Marketplace Strength, E-Commerce Expansion
AppLovin’s integrated marketplace continues to deliver strong results. Its MAX platform, paired with Axon 2.0 AI enhancements, is improving bid density and advertiser matching. This has translated into solid operating momentum through late 2025, with management expressing confidence in continued sequential growth into early 2026 despite typical seasonal softness.
A major long-term opportunity lies in improving conversion rates. Management believes these can gradually move toward roughly 5% from historical low single-digit levels. This would be driven by better AI models and increased advertiser diversity, especially beyond gaming. As more bidders enter the ecosystem, AppLovin benefits from take-rate mechanics, even on lower-value impressions, supporting steady share gains.
AppLovin is increasingly targeting web and e-commerce advertisers. Its self-serve Axon Ads platform is currently referral-only but is expected to become widely available in the first half of 2026. Generative AI features, including an interactive page generator and upcoming video ad tools, are designed to streamline onboarding and boost campaign performance.
This push into e-commerce could significantly expand AppLovin’s addressable market, helping it compete more directly with The Trade Desk in broader digital advertising while reducing reliance on gaming. Still, Unity Software remains a massive competitor within the gaming ecosystem, making diversification crucial for AppLovin’s long-term growth.
One of AppLovin’s biggest strengths is profitability. The company reported an adjusted EBITDA margin of about 84% in the fourth quarter of 2025, alongside free cash flow of roughly $1.3 billion. This highlights strong operating leverage and efficient cost management. Management expects similar margin levels in the first quarter of 2026, signaling durability even as the business expands into new verticals. Importantly, any increase in performance marketing spend is expected to remain ROI-driven, with early tests showing quick payback periods.
How Do Zacks Estimates Compare for COHR & APP?
The Zacks Consensus Estimate for APP’s 2026 sales indicates year-over-year growth of 42%, and that for earnings indicates a year-over-year increase of 58%. EPS estimates have been trending upwards over the past 60 days.
The Zacks Consensus Estimate for COHR’s 2026 sales and EPS indicates year-over-year growth of 21.5% and 55%, respectively. EPS estimates have been trending upwards over the past 60 days.
COHR’s Valuation More Attractive Than APP
COHR is trading at a forward price-to-sales multiple of 8.02X, above its 12-month median of 3.64X. APP’s forward price-to-sales multiple stands at 20.63X, below its median of 21.57X.
Coherent Appears Better Positioned
Coherent appears better positioned for investors seeking a more balanced AI growth opportunity. The company is benefiting from rising demand for AI infrastructure while also showing early signs of recovery in its industrial business, creating multiple growth drivers. Its strong liquidity position and improving debt profile further strengthen confidence in its long-term outlook. Although AppLovin continues to deliver impressive profitability and advertising momentum, its premium valuation and competitive pressures in digital advertising may limit upside potential.
With the stocks carrying a Zacks Rank #3 (Hold) each at present, Coherent’s diversified growth profile and relatively attractive valuation give it the edge.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.