Coherent's Beat and the Sell-Off
Coherent (COHR) beat every buy-side target and key metric in its fiscal Q4 report. The stock still dropped. The reason is simple: COHR rallied 60% over the last 10 sessions, so traders who bought ahead of earnings sold the news. This is normal market behavior. COHR is a stock to add to, not sell.
Compared side by side the next day with Lumentum (LITE), COHR is the better name, though both are worth owning. COHR's edge is its own vertically integrated indium phosphide manufacturing. Indium phosphide is the base material for the substrate used in optical transceivers, co-packaged optics, and similar parts. COHR has been ramping this capacity for the last couple of years and just took another big step up.
Optical demand outpaces supply by a large margin. COHR is best positioned to meet that surge because it makes its own indium phosphide, which also gives it better margins. The ramp is starting now. Indium phosphide production will double by the end of Q1 2027 and double again by year-end 2027.
Doubling that capacity unlocks pent-up demand already sitting in the order book. 2027 is fully booked out at COHR's expected raw material production level. Revenue follows the indium phosphide ramp, so revenue should double between now and the end of Q1 2027, then double again by the end of 2027. That is a strong investment case.
Other Optical and Networking Names
Corning (GLW) lacks the margins the other optical names have. It sits in dividend-yielding, lower-beta portfolios as a small holding, but I don't expect it to stand out. Ciena (CIEN) is a name I trade in and out of at times.
The whole networking and equipment space looks very attractive. Cisco (CSCO) reported the prior night and fell because its margin guidance came in a bit below expectations. That weakness comes from shipping more hardware to meet demand, both at the data center level and in the campus switch market, which badly needs an upgrade. That upgrade is a big driver. COHR sits near the top of the networking equipment list, with Lumentum (LITE) right behind it.
Riding the Volatility
Q: How do you hold these volatile stocks through the rough patches and stay convicted?
A: Stay close to the story and follow these stocks closely. Sell-side sales and trading desks send rumors, details, and news headlines you might not catch on your own, which helps a lot. Positions are added when a name is short-term oversold, measured with a tool used for 30 of my 41 years in this business. Buying into oversold conditions gives conviction of both immediate upside and long-term upside, so the position starts on the right foot.
Software for the Inference Economy
The sharp turn up in some software stocks stands out. Call them software for the inference economy: Cloudflare (NET), Twilio (TWLO), Shopify (SHOP), and Snowflake (SNOW), which has yet to report. Cloudflare added 2 million total new signups for its developer product in Q2 alone, versus 1.5 million total in all of 2025 - a big inflection. Shopify's average daily marketers rose 3.6 times year over year in Q2. Something agentic is driving this. It shows up in the price charts of Shopify, Twilio, and Cloudflare, and it is an exponential multiplier that deserves close attention.
Cybersecurity Winners and Laggards
Q: What separates the strong cyber names from weak ones like Zscaler (ZS)?
A: The breadth of the product suite. Palo Alto Networks (PANW) and CrowdStrike (CRWD) have been rolling up different pieces of the security stack and offer the most integrated product suite. Palo Alto (PANW) is likely to come out of earnings better than CrowdStrike (CRWD), where expectations are very high, but both are names worth owning. Corporate America won't cut security spending, especially as open source models in China and the United States push against the frontier capabilities of models like Claude. That creates many vulnerabilities, so spending is not the risk. Both PANW and CRWD look up and to the right. Zscaler (ZS) hasn't drawn attention because it lacks the broad suite the other two have.
