It has been about a month since the last earnings report for Coherent (COHR Quick QuoteCOHR - Free Report) . Shares have added about 32.2% in that time frame, outperforming the S&P 500.

But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is Coherent due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

COHR Q3 Earnings Meet Estimate

Coherent reported third-quarter fiscal 2026 adjusted earnings of $1.41 per share, which matched the Zacks Consensus Estimate and increased 55% year over year. Revenues of $1.8 billion rose 21% year over year and surpassed the consensus estimate of $1.78 billion by 1.5%.

Management highlighted exceptionally strong demand trends across AI networking infrastructure, with bookings reaching record levels and backlog extending into 2028. The company also noted that long-term agreements now extend through the end of the decade.

AI Data Center Demand Drives COHR Growth

Coherent’s Datacenter & Communications segment remained the primary growth engine, accounting for 75% of total revenues in the quarter compared with 65% in the year-ago period. Segment revenues increased more than 40% year over year.

Within the data center business, revenues climbed 13% sequentially and 37% year over year, marking the second consecutive quarter of double-digit sequential growth. Growth was fueled by strong demand for 800G and 1.6T transceivers as hyperscale customers expanded their AI infrastructure deployments. Management expects further acceleration in the current quarter, supported by improving supply availability and capacity expansion initiatives.

The communications business also delivered strong results, with revenues increasing 16% sequentially and 60% year over year. Demand remained robust for data center interconnect products, including ZR and ZR+ transceivers, as well as broader transport networking solutions.

Coherent Expands Capacity Amid Strong Orders

Management stated that indium phosphide capacity expansion remains a key strategic priority due to industry-wide supply constraints. The company expects to double its internal indium phosphide output capacity by the end of 2026, one quarter ahead of schedule and plans to more than double capacity again by the end of 2027.

Coherent’s 6-inch indium phosphide platform is now producing electro-absorption modulated lasers, CW lasers and photodiodes with yields exceeding legacy 3-inch production lines. During the quarter, the company shipped its first transceivers incorporating components manufactured on the 6-inch platform, contributing to both revenue growth and gross margin expansion.

Management also emphasized growing opportunities in optical circuit switching (OCS) and co-packaged optics (CPO). The company increased its estimate of the OCS market opportunity to more than $4 billion and expects initial scale-out CPO revenues to ramp up in the second half of 2026.

NVIDIA Partnership Strengthens Long-Term Outlook

During the quarter, Coherent announced a strategic partnership with NVIDIA focused on advanced optical networking and CPO technologies for AI data centers. The agreement includes a $2 billion equity investment from NVIDIA and a multi-year supply agreement extending through the end of the decade.

Management believes the partnership strengthens Coherent’s position in next-generation AI networking infrastructure and creates meaningful long-term revenue visibility across lasers, optical components and integrated photonic systems.

Margins Expand on Better Mix & Cost Efficiencies

Non-GAAP gross margin expanded 105 basis points year over year to 39.6%, driven by lower product input costs, pricing optimization and yield improvements from the 6-inch indium phosphide ramp.

Non-GAAP operating margin improved to 20.3% from 18.6% in the prior-year quarter. Meanwhile, non-GAAP operating expenses increased due to continued investments in research & development initiatives supporting transceivers, CPO and high-value optical networking systems.

The company ended the quarter with $3 billion in cash, up significantly from $1.5 billion in the previous quarter, primarily due to NVIDIA’s investment. Coherent also reduced its debt leverage ratio from 1.7 to 0.5 sequentially after making $162 million in debt payments.

COHR Guides Strong Sequential Growth

For fourth-quarter fiscal 2026, Coherent expects revenues to be between $1.91 billion and $2.05 billion. The company guided adjusted earnings per share between $1.52 and $1.72. Adjusted gross margin is expected to be in the range of 39-41%.

Management expects fiscal 2027 revenue growth to exceed fiscal 2026 growth, supported by expanding AI infrastructure deployments, growing optical networking demand and continued production capacity increases.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Coherent has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock has a grade of D on the value side, putting it in the bottom 40% for value investors.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, Coherent has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Coherent belongs to the Zacks Technology Services industry. Another stock from the same industry, Aptiv PLC (APTV Quick QuoteAPTV - Free Report) , has gained 27.7% over the past month. More than a month has passed since the company reported results for the quarter ended March 2026.

APTIV PLC reported revenues of $5.09 billion in the last reported quarter, representing a year-over-year change of +5.4%. EPS of $1.71 for the same period compares with $1.69 a year ago.

APTIV PLC is expected to post earnings of $1.43 per share for the current quarter, representing a year-over-year change of -32.6%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.8%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for APTIV PLC. Also, the stock has a VGM Score of B.