Consistent gains from the AI ​​chip boom

Key points

  • Coherent makes laser and optical technology products such as its Datacom 800G transceivers that convert electrical signals into optical signals, enabling data transmission across fiber optic networks.
  • Artificial intelligence (AI) applications are driving demand for Datacom, pushing the 800G transceiver business past the $100 million quarterly mark, increasing sequential revenue by 100%.
  • Mitsubishi Electric and DENSO each invested $1 billion to acquire a 12.5% ​​minority stake in Silicon Carbide LLC, Coherent’s silicon carbide business, and entered into long-term supply agreements.
  • 5 stocks we like best from Lumentum

Chips to the consistent

Coherent Co. NYSE:COHR develops and produces laser and optical technologies through its Compound Semiconductors and Photonic Solutions divisions. Formerly known pre-merger as II-VI, Coherent is an information technology company implementing a multi-year restructuring plan to streamline operations. The company is benefiting from the boom in artificial intelligence (AI).

Demand pushes sales of its AI- and machine language (ML)-related Datacom transceivers past $100 million quarterly thresholds.

Silicon Carbide LLC

Coherent said it is more confident in the long-term prospects of its silicon carbide (SiC) business. SiC is a compound of silicon and carbon atoms that creates a rigid, abrasive, highly durable material with high thermal conductivity and melting point. The compound is found in semiconductors, electronics, ceramics, diodes and transistors.

Coherent completed its deal with Mitsubishi Electric and DENSO Co. to create a new company with its silicon carbide business called Silicon Carbide LLC. Each company received a 12.5% ​​stake after investing $1 billion in the new company and establishing long-term supply agreements to support demand for silicon carbide substrates and epitaxial wafers. Coherent is the big winner as it owns 75% of the operations.

From lasers to chips to data centers

Coherent’s laser products strengthen digital communications infrastructure. From lithographic functions such as tracking semiconductor wafers with microscopic integrated circuits to maintaining bandwidth with optical network transceivers, the company is benefiting from secular tailwinds in the semiconductor, bandwidth, and AI/ML segments .

Its data center business is thriving as 800G revenues have increased 100% sequentially and demand is growing stronger for its 1.6T transceivers and components, which are expected to launch in the first quarter of fiscal year 2025. The company competes with Lumentum Holdings Inc. NASDAQ: LITE AND IPG Fotonica Co. NASDAQ:IPGP.

Improving demand trends

Coherent reported fiscal second-quarter 2024 earnings per share of 36 cents, beating analysts’ consensus estimates of 26 cents by 10 cents. Revenue fell 17.4% year-over-year to $1.13 billion, beating analysts’ estimates of $1.12 billion and growing 7% sequentially. Non-GAAP gross margin was 36%.

Operating cash flow was $67 million, down from $220 million in the same period a year earlier. The company has paid off $89 million in outstanding debt. While macroeconomic uncertainty remains in the near term, Coherent sees improving demand trends and expects ongoing sequential improvement in revenue growth for the remainder of fiscal 2024.

Fiscal outlook for the third quarter of 2024

Coherent provided flat guidance for the fiscal third quarter of 2024. Revenue is expected to range between $1.12 billion and $1.20 billion versus consensus analyst estimates of $1.17 billion. Non-GAAP gross margin is expected to be between 36% and 38%. Non-GAAP EPS is expected to be between 32 cents and 52 cents versus analysts’ estimate of 38 cents. CapEx is expected to be between $115 million and $145 million, of which Silicon Carbide LLC will finance $50 million.

Raise the full-year 2024 fiscal outlook

Full-year 2024 revenue is expected to be between $4.55 billion and $4.70 billion versus the $4.58 billion analysts estimated. Full-year EPS will be between $1.30 and $1.70, up from $1.50 to $1.70 in previous forecasts versus $1.33 in consensus analyst estimates. Restructuring, consolidation and synergy expenses are estimated to be between $155 million and $177 million.

Coherent CEO Vincent Materra commented: “Our long-term outlook for improved margin structure and strong secular growth across all of our markets remains unchanged, driven by both an eventual recovery in end-market demand and impact of artificial intelligence along with other significant factors…”

Matera added: “Underpinning our revised outlook, the second quarter strengthened our confidence in the outlook for our Datacom vertical (which falls within our communications market) led by AI-related data centers built by Webscale, from other cloud Internet content providers and the companies that provide them.” .”

Consistent analyst ratings and price targets I’m on MarketBeat. Check out Coherent peers and competitor actions with MarketBeat Stock Screener.

Daily ascending triangle and golden cross breakout

The daily candlestick chart on COHR illustrates an ascending triangle pattern indicated by a flat upper trend line compared to the ascending trend line.

There are a limited number of candles in the pattern considering the price gap at $55 from $49.74 formed following the release of fiscal Q2 2024 earnings. The 50-period daily moving average (MA) crossed the 200-period moving average, triggering the Golden Cross breakout on January 9th. The daily relative strength index (RSI) has risen to elevated overbought levels in the 85 band. Pullback support levels are at $55, $52.99, $49.74, and $44.11.

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