Coherent Corp. closed out fiscal 2026 with numbers that read like a growth company hitting its stride. Fourth quarter revenue reached $2.05 billion, up nearly 34% from a year earlier. Non-GAAP earnings per share came in at $1.74, not just beating Wall Street's estimate of $1.62 but landing above the very top of the company's own guidance range. Management raised its outlook again for the current quarter. Then the stock dropped almost 8% over the following trading session.
That gap between the numbers and the reaction is the real story here. Coherent did not miss. It beat its own ceiling. The question investors are wrestling with is what that beat is actually costing the company to produce.
A guidance beat with a catch
Coherent's optical components business, the part of the company tied to AI data centers, grew 59% year over year in the quarter and now makes up about 79% of total revenue, up from 67% a year ago. Chief executive Jim Anderson told analysts the company is on track to double its Indium Phosphide laser output this quarter, a full quarter ahead of its original schedule, with production yields on newer 6-inch wafers already beating the older 3-inch line. He said data center segment growth this quarter should top 80% year over year.
On co-packaged optics, a next-generation networking technology some investors worried might slip, Anderson was direct: "We have seen absolutely no push out of CPO demand. In fact, it has been the opposite." He said customers are pulling demand forward, not delaying it. That comment, made in response to a JPMorgan question about market chatter around CPO delays, was one of the more pointed rebuttals management offered all quarter.
None of that reads like a company losing its footing. The industrial side of the business is still shrinking, down 16% in the quarter and 10% for the year, but that decline is old news and was already priced into expectations.
Where the growth is actually coming from, and what it costs
Here is the part of the story that did not show up in the headline numbers. Coherent's operating cash flow for the full fiscal year was $79.5 million. Its capital spending over the same period was $1.1 billion, most of it tied to building out Indium Phosphide laser capacity in Texas and Sweden, with a third facility targeted for the first half of calendar 2027. Subtract one from the other and Coherent's free cash flow for the year comes out to roughly negative $1 billion, even as non-GAAP net income for the year topped $1.1 billion.
That is not a rounding error or an accounting quirk. It is a company whose reported profitability and its actual cash generation moved in opposite directions during a year management is calling exceptional: a record year that, on a cash basis, produced almost nothing. That figure comes directly from Coherent's own reported operating cash flow and capital expenditure numbers, not from an outside estimate.
To be clear about what is fact and what is not: the size of the annual cash flow gap is a verified, issuer-sourced number. How much of the fourth quarter specifically contributed to it is less certain, because Coherent had not yet published a discrete quarterly cash flow statement as of this writing; that portion of the picture is estimated by subtraction rather than confirmed directly.
Coherent funded the difference the way growth companies often do when spending outpaces cash generation. It raised nearly $2 billion in new equity during the year and took on $1.25 billion in new term debt, while also paying down $1.7 billion of existing debt. Total stockholders' equity nearly doubled to $10.9 billion. The balance sheet absorbed the gap without strain. Whether that remains true as the capacity build-out continues is a separate question.
What changed since last quarter
The distinction between this result and the one that came out of Applied Materials, another chipmaking-adjacent name that reported the same week, is worth making explicit. Applied Materials landed inside its own guided range, above the midpoint but below the ceiling. Coherent beat its ceiling outright. That is a stronger guidance-beat pattern, not an equivalent one, and it makes the stock's decline harder to explain purely as sector-wide profit-taking.
What also changed is the market's tolerance for the story. Coherent shares had already climbed roughly 260% over the prior twelve months entering this print, based on the stock's own trading history. A stock that has run that far can fall on a clean beat simply because expectations, and valuation, had already priced in more good news than management could add on the call. Valuation remains a live concern even as the underlying growth story continues to hold up.
What would resolve the debate
Neither explanation for the selloff, profit-taking after a steep run-up or a legitimate reassessment of cash conversion, can be ruled out from this quarter's data alone. What would help settle it is visible in the numbers ahead. If Coherent's operating cash flow recovers meaningfully once the current phase of Indium Phosphide capacity spending tapers, that would support the case that this was a temporary, self-funded investment cycle rather than a structural earnings-quality problem. If the cash gap persists or widens even as capital spending plateaus, that would validate the cash-conversion concern this analysis has flagged.
Investors should also watch whether management addresses the cash flow trajectory directly on the next call. It went unaddressed in the portion of this quarter's call available for review, and unresolved: whether analysts pressed on it privately, or simply let it pass. Coherent proved this quarter that demand for its optical components is real and, by its own account, accelerating. What it has not yet proven is that the company can grow into that demand without continuing to burn cash at this pace.