$COHR earnings sure were... exciting? There is a lot to unpack here. That price action definitely could make you question your thesis. But if you dig under the headlines the story is very compelling and I am a buyer. Coming off of a massive $LITE earnings I believe that market had really high expectations for $COHR. But it’s not an apples to apples comparison. There is a massive valuation gap. $LITE deserves the premium because it’s a cleaner, more concentrated AI optics earnings stream, so the growth shows up more directly in the consolidated numbers. $COHR is still a blended story (datacenter + comms plus a real industrial/legacy base), which smooths the headline growth rate even if the datacenter engine growth is solid. COHR can work to close the gap if that datacenter mix keeps rising while 6-inch InP drives a real margin + cash flow inflection and the new legs (OCS + CPO) start showing up as revenue instead of future tense. But that’s why it’s important to know what you own and to be able to dig and see what really matters So lets do just that It’s easy to highlight the good, so let’s start with the “bad” 1- I think most of the initial selloff was due to sticker shock. Even though the earnings were really strong, they weren’t $LITE strong. But they were never going to be. As I mentioned, Lumentum is going to see higher rates of growth. That’s why they trade at a much higher P/S. Lumentum is also more of a pure-play whereas Coherent has a wider base of more legacy revenue streams that aren’t going to grow that fast. So let’s demonstrate this with some number. Coherent did $1.69B this quarter. The key is the mix. Datacenter + Comms is now the engine, but Industrial is still meaningful, so you are not going to get the same pure AI optics quarter-to-quarter profile that the market is heavily rewarding At the same time, the mix shift is accelerating in the right direction. Datacenter + Comms went from about $905M a year ago to about $1.2B this quarter, while Industrial moved from about $530M to about $478M. So the legacy drag is real, but the business is still becoming more AI weighted every quarter. 2 - Cash flow negative? It might feel like a company at this stage should be FCF + (as Lumentum is) but there is a very good reason they aren’t. There was so much reiteration and emphasis on the need/desire to expand their capacity. I see this as a major positive (for anyone with a multi-year investment at least). More on this later, but basically we take a bit of a hit now which opens the door for massive growth and supply later. Capex was $154M this quarter and they basically told you it is going higher sequentially through the rest of the fiscal year. They are choosing to be cash flow ugly now so they can be supply rich later. 3 - Macro uncertainty. We all saw the tape today. Bloody. AMD down big, SAAS down big, high beta down big. Almost everything was under pressure. So the fact that Coherent is at the same price it was at on Monday is pretty solid IMO. If you are a short term trader and bought today, yeah this is rough. I personally bought at $220/$207/$170. But this is my long term hold and my avg. price is way below these levels. Ok, now on to the good 1 - Demand visibility is unusually strong…. They said datacenter book to bill was over 4x. They said orders are moving further out. They said most of calendar 2026 is booked, 2027 is filling quickly, and they are getting customer forecasts into 2028. Then they layered on long-term agreements where customers commit demand and sometimes help fund capacity. This is what you want in an actual capacity buildout. Not only are customers interested but they are planning and committing and a very meaningful way 2 - Margins are improving and there is a plan for even higher as we go along… Non-GAAP gross margin was 39% and they are still talking about a long-term model over 42%. The drivers are BOM and input cost reductions, cycle time and yield improvements, pricing optimization, and then volume. And the portfolio clean-up is crucial as well. They sold the Munich tools business that was about $25M per quarter of low margin revenue, and they explicitly said proceeds go to paying down debt, lowering interest expense, and being immediately accretive. 3 - The InP advantage (and what it actually means) This is the core reason I wanted higher concentration in COHR. Management basically spent the whole call telling us that InP is still the bottleneck, and they don’t expect the supply/demand imbalance to normalize this year or next. That matters because when the industry is short, the winner is not "who has demand”… it’s who can actually ship. (And who can ship profitably.) Now look at what they’re doing about it: 6-inch indium phosphide ramp. They’re producing key transceiver components on 6-inch (EMLs, CW lasers, photodiodes), and they’re framing 6-inch vs 3-inch as 4x+ chips at less than half the cost. That’s a structural manufacturing advantage that should show up in cost, margins, and supply reliability as the 6-inch mix grows. Then stack on top of that the next wave 1.6T is ramping, and they basically said it is margin accretive because ASPs are higher than 800G and early-cycle margins tend to be higher. CPO is being framed as additive TAM, and the big payoff is scale-up, because that network is electrical today. OCS is also getting real. They have 10+ customer engagements, backlog grew, and they said backlog is weighted toward the larger 320x320 systems, with use cases expanding beyond the classic spots in the network. So I find $COHR extremely attractive at these levels. I think they are going to do >$7B in rev for Fy26 and they are valued at ~29B at the time of this writing. I think the market is getting it wrong tbh. Because the stock is being treated like good quarter, messy cash flow, not LITE. While the fundamentals are increasingly multi-year visibility + capacity flywheel + margin expansion. Could I be wrong? Sure. Should you follow me blindly? Absolutely not. Again, remember my cost basis is low, I have a long term time frame, and I believe in the thesis. This allows me to have confidence on any (highly likely) dips that are coming. Especially in this tape. Who knows how low this will go. I will personally be buying at the 200ma and $170 levels again NFA of course. Please do you own DD! If you found this insightful, please do engage/ask questions and share!