Jefferies is bullish on optical communication giants: Coherent (COHR.US) and Lumentum (LITE.US) will ride the AI data center trend to new heights.

Jefferies indicates that with the continuous drive of artificial intelligence (AI) for faster interconnection speeds, data centers are expected to experience significant growth, thereby boosting demand in the network market. Based on this, the investment firm has started covering Coherent (COHR.US) and Lumentum Holdings (LITE.US) and has given them a "buy" rating. Jefferies analysts led by Blayne Curtis stated in an investor report, "The bullish thesis for Coherent does not rely on some flashy technology transformation to drive market share, in fact, quite the opposite. Coherent dominates the current 400G (and potentially 800G) transceiver market, but a series of failed acquisitions, restructurings, and overall unnecessary expenditures have weighed on its performance." Curtis added, "While concerns persist in the market regarding the ongoing viability of VCSELs at 200G per channel, the company remains confident in its ability to produce 200G VCSEL products and its EML/SiPho business is also steadily growing." However, Jefferies has lowered Coherent's target price from $135 to $110. Coherent reported record sales of $1.43 billion in the second quarter of the 2025 fiscal year, a 27% year-over-year growth. Coherent CEO Jim Anderson stated during the earnings call, "This growth was driven by strong performance in several areas, including significant growth in AI-related data communication transceivers, consecutive quarter-over-quarter growth in telecom revenue, and continued expansion in several key industrial end markets." Meanwhile, Jefferies has lowered Lumentum's target price from $110 to $100. Curtis pointed out, "In sharp contrast to Coherent, Lumentum's narrative revolves around technology transformation. As channel speeds move towards 200G per channel (required for 1.6T), existing VCSEL solutions have proven to be ineffective. The primary choice now is EML, and Lumentum is one of only three laser manufacturers. The EML laser market is sold out until the end of the year, driving strong pricing dynamics. Although Lumentum's history in the VCSEL field has not been successful, the transition to EML aligns its market positioning more with its technical expertise."