What Happened?

Shares of materials and photonics company Coherent (NYSE: COHR) jumped 12.6% in the afternoon session after Raymond James analyst Simon Leopold upgraded the stock's rating alongside Lumentum from Outperform to Strong Buy following positive updates from Nvidia's annual GPU Technology Conference and Corning's analyst day meeting. 

Leopold addressed market concerns over Co-Packaged Optics, a technology that integrates optical transceiver (essentially a laser that beams data) and silicon chips (the computer's brain) in one package. This means that information no longer needs to travel long distances, boosting efficiency and speed. 

Some investors had been worried about its (Co-Packaged Optics) impact on these companies, but Leopold felt those concerns were overblown. Notably, as Nvidia introduced its first co-packaged optics silicon photonics system, Lumentum contributed lasers, while Coherent played a key role in silicon photonics. 

Providing additional context, Nvidia CEO Jensen Huang highlighted the critical role of silicon photonics in enabling large-scale GPU interconnectivity. He explained, "The challenge with scaling out GPUs to many hundreds of thousands is the connection of the scale-out. When the data centers are now the size of a stadium, we need something [new]—and that's where silicon photonics comes in." 

Additionally, Leopold noted that while Coherent and Lumentum stocks had faced pressure leading up to the year's OFC (Optical Fiber Communications) Conference, increased clarity on CPO and broader market opportunities could serve as positive catalysts for both stocks. 

Finally, the analyst predicted that the AI backend transceiver market, where both Lumentum and Coherent supply Nvidia, would reach $22 billion by 2030 (30% compound annual growth rate).

The shares closed the day at $76.77, up 12.5% from previous close.

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What The Market Is Telling Us

Coherent’s shares are extremely volatile and have had 37 moves greater than 5% over the last year. But moves this big are rare even for Coherent and indicate this news significantly impacted the market’s perception of the business.

Coherent is down 24.3% since the beginning of the year, and at $76.19 per share, it is trading 32% below its 52-week high of $112.02 from December 2024. Investors who bought $1,000 worth of Coherent’s shares 5 years ago would now be looking at an investment worth $2,776.

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