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In the last year, the volatility in Coherent Corp. (NYSE:COHR) continued earlier this week when the company named Jim Anderson as its new CEO. Nearly a year ago, investors had no reason to follow the monster rally at $54.87. Back then, the stock soared in the absence of news.

Is this most recent rally any different? If they benefit the company, leadership changes are among the highest-ranking positive catalysts.

About Coherent’s new CEO Jim Anderson

After a comprehensive search, Coherent’s Board of Directors appointed Jim Anderson as the company’s new CEO. Anderson will also join the Board. Anderson was previously President, CEO, and a Board member of Lattice Semiconductor Corporation (LSCC). The press release highlighted Anderson’s responsibility in driving Lattice’s corporate strategy, strengthening its product roadmap, and achieving record profits and gross margin.

Anderson replaces Coherent’s retiring Chair and CEO of Coherent.

The board expects CEO Anderson will maximize the growth potential from the artificial intelligence tailwinds. Coherent has an AI-related datacom portfolio. In its third-quarter conference call, the firm mentioned AI 12 times, when it reported a nearly 50% sequential increase in non-GAAP earnings per share. Demand for its 800G datacom transceivers lifted Q1 results and will continue in the quarters ahead.

In fiscal year 2023, 800G accounted for $20 million in revenue, rising to $50 million in Q1, and just over $100 million in Q2. In Q3, Coherent expects revenue of $200 million, followed by Q4 revenue of over $250 million from 800G sales.

Coherent saw signs of improving demand in its industrial market. This included stabilization in its instrumentation and electronic markets. At the time, COHR’s stock price drifted in the $53 – $58 range. The stock pulled back ahead of the announcement of the new CEO hire. This amplified the stock rally from below $56 to as high as around $70.00 on June 3.

AI Opportunities

The implementation of AI tools is an opportunity for Coherent. Since it is in the initial phases, investors need to wait for the company to achieve higher margins.

In the next five years, shareholders should expect growth in 800G of 60% CAGR (compounded annual growth rate). GPUs that power AI servers require optical bandwidth. The growth in the number of GPUs increases optical bandwidth requirements. This is a tailwind for Coherent’s long-term growth.

Operationally, Coherent is implementing a synergy and restructuring plan. This includes the global design of a new ERP implementation. Readers should not this a catalyst for its stock price, since such system installations may face unexpected delays.

COHR Stock Quant Ratings

The quant rating on Coherent flipped from a hold on May 29 to a strong buy on May 30. The rating back to hold suggests that readers should not chase the most recent rally. The stock now prices in the positive prospects of Coherent’s new leadership.

In the year-to-date period, Coherent outperformed Lattice stock. LSCC has weak stock grades, especially for growth. Analysts lowered their EPS expectations, resulting in an EPS revision grade of “F” for Lattice stock.

Lattice’s weak prospects suggest that the CEO left the firm at the right time.

Semiconductor investors may consider Macom Technology (MTSI) or Universal Display (OLED) instead. These companies have better profitability, momentum, and EPS revision grades compared to that of Lattice Semiconductor.

Qorvo (QRVO) shares weakened considerably in the last month. Its outlook for the June quarter worsened. Investors should avoid companies that do not meet consensus estimates. Qorvo is underperforming because of the downturn in demand for smartphones.

Your Takeaway

Add Coherent Corp. stock to the watch list after shares staged a solid rally. The incoming CEO is a necessary executive leadership change that the company needs. As the AI hardware investment cycle rises, shareholders should expect sales of Coherent’s 800G to grow by over 20% in the years ahead.