Ciena vs. Coherent: Which AI Optical Networking Stock is a Better Buy?

Let’s analyze their fundamentals, growth opportunities, market challenges and valuation to assess which one presents a stronger investment opportunity.

The Case for CIEN

Ciena is benefiting from strong AI-driven demand for optical networking infrastructure from hyperscalers and service providers, supported by rising bandwidth requirements, increasing data center interconnect activity and solid adoption of coherent optical technologies. This strength was reflected in record second-quarter fiscal 2026 revenue of $1.57 billion, up 40% year over year. Backlog also increased by more than $600 million sequentially to $7.7 billion, providing strong visibility into 2027.

Product adoption and new customer wins are further supporting Ciena’s growth outlook. The company secured the industry’s first multi-rail order for its RLS Hyper-Rail platform from a leading hyperscaler, while DCOM helped drive 88% year-over-year growth in the Routing and Switching segment in the fiscal second quarter. Demand for 400G and 800G pluggables remains strong, with pluggable revenue expected to more than double from 2025. Direct cloud customer revenue increased 70% year over year, while service provider revenue rose 28%.

Ciena’s improving financial performance and higher fiscal 2026 outlook also reinforce its growth prospects. Adjusted gross margin expanded to 44.9%, adjusted operating margin reached 19.5% and adjusted EPS nearly quadrupled to $1.64. Free cash flow totaled $219 million, while cash was $1.4 billion. Following strong first-half execution, management raised its fiscal 2026 guidance and now expects revenue of approximately $6.3 billion, plus or minus $100 million, with adjusted gross margin of 44.5% to 45% and operating margin of around 19%.

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However, Ciena continues to face supply constraints as demand remains ahead of available component supply. On the last earnings call, management indicated that the industry-wide supply-demand imbalance persists, requiring continued investments with suppliers to secure manufacturing capacity and ensure supply availability. These constraints could limit Ciena’s ability to fully convert strong customer demand into revenue.

Higher operating expenses and reliance on continued customer spending also pose concerns. Ciena raised its operating expense guidance to support supply-security initiatives and higher variable compensation, which could pressure profitability despite benefits from engineering cost reductions, pricing optimization and disciplined working capital management. In addition, growth remains dependent on sustained networking investments by hyperscalers and service providers as AI workloads expand. While hyperscalers have increased their 2026 capital expenditure plans and service providers are resuming optical infrastructure investments, any slowdown in spending could affect demand, while supply availability remains critical to converting the company’s strong backlog into revenue.

The Case for COHR

Coherent is benefiting from strong demand across AI data centers and communications, supporting robust growth in fiscal 2026. Full-year revenue reached a record $7.12 billion, up 23% year over year and 28% on a pro forma basis, while fourth-quarter revenue increased 34% year over year to a record $2.05 billion. The company’s performance was driven by strength in AI data center and communications demand, while non-GAAP EPS grew 59% for the full year.

Strong customer demand and expanding opportunities across the data center portfolio are further supporting Coherent’s growth prospects. Datacenter & Communications revenue increased 59% year over year in the fourth quarter, while data center revenue climbed 66%. Demand for 800G and 1.6T transceivers remains strong, with 1.6T adoption expected to accelerate through calendar 2026 and 2027. The company also expects OCS, CPO and multi-rail systems to increasingly contribute to growth as production capacity expands.

Expanding production capacity and improving profitability also strengthen Coherent’s outlook. The company is on track to double its internal indium phosphide output year over year by the end of the current quarter, with 6-inch production delivering higher yields than its 3-inch lines. Gross margin increased to 40.2% in the fourth quarter, with further improvement expected from capacity expansion, pricing optimization and cost efficiencies. Coherent expects fiscal 2027 first-quarter revenue of $2.2-$2.4 billion and is targeting more than $3 billion in quarterly revenue by the end of fiscal 2027.

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However, capacity constraints remain a key challenge for Coherent. On the last earnings call, management identified indium phosphide production as the primary constraint on the company’s transceiver business, while assembly and testing capacity remains available. Although Coherent is rapidly expanding its 6-inch indium phosphide production, the pace of this ramp remains important to its ability to meet strong customer demand and support further revenue growth.

Higher operating expenses are another concern as Coherent continues investing in its product portfolio and capacity expansion. Fourth-quarter non-GAAP operating expenses increased to $377 million from $348 million in the prior quarter and $307 million a year earlier, while full-year operating expenses rose to $1.35 billion from $1.17 billion, primarily due to increased product investments. Although operating expenses declined as a percentage of revenue and management expects further operating leverage, continued investment remains a factor as the company ramps new products and expands capacity.

CIEN Shares vs. COHR

Over the past three months, CIEN shares have declined 31.9% while Coherent stock has plunged 23.9%.

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Valuation for CIEN & COHR

In terms of Price/Book, CIEN shares are trading at 19.55X, higher than COHR’s 5X.

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How Do Zacks Estimates Compare for CIEN & COHR?

Analysts have not revised their earnings estimates for CIEN’s bottom line for the current year.

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For COHR, there have been upward revisions for the current year.

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CIEN or COHR: Which Stock to Bet on?

CIEN and COHR both currently carry a Zacks Rank #3 (Hold), but COHR appears to be the better pick. Although both companies are benefiting from strong AI-driven demand and face capacity-related challenges, Coherent’s upward analyst revision for earnings estimates and comparatively lower valuation give it an edge over Ciena.

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This article originally published on Zacks Investment Research (zacks.com).

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