DCF assumptions

This page documents the assumption set behind a discounted-cash-flow framework for Coherent Corp through FY2030, with explicit base / bull / bear paths. The model is anchored to primary-source disclosures for FY2025 actuals and FY2026 H1 actuals + Q3 guidance, with forward-period assumptions derived from management framing on capacity, ASP discipline, NVDA customer-concentration, and the CPO transition timing. All scenarios use a 10% discount rate and explicit terminal-growth assumptions; sensitivity table at the bottom.

Anchor data (FY2025 actuals)

Metric	FY2025
Revenue	$5,810M
Non-GAAP gross margin	37.9%
Non-GAAP operating margin	17.8%
Operating cash flow	$633.6M
Capex	$440.8M
Free cash flow (OCF – capex)	$192.8M
Diluted share count	~158M
Net debt	~$2.78B

Source: FY2025 10-K / press release ✓.

Driver assumptions — base case

Driver	FY2026	FY2027	FY2028	FY2029	FY2030
Revenue ($B)	6.7	7.7	8.5	9.0	9.4
YoY growth	+15%	+15%	+10%	+6%	+5%
D&C share	71%	75%	76%	76%	75%
Industrial share	29%	25%	24%	24%	25%
Non-GAAP GM	39.0%	40.0%	40.5%	40.0%	39.5%
Non-GAAP OM	20.5%	22.0%	22.5%	22.0%	21.5%
Capex ($M)	600	750	800	700	650
Capex/revenue	9.0%	9.7%	9.4%	7.8%	6.9%
Operating cash flow ($M)	900	1,200	1,400	1,500	1,550
Free cash flow ($M)	300	450	600	800	900
Diluted share count (M)	192	200	208	215	220

Base-case rationale

Revenue growth tapers — from +17% FY2026 H1 actual to +5% terminal. The 10–15% growth in FY2026 → FY2028 reflects continuing AI-cycle plus 1.6T → CPO transition; the deceleration to 5–6% in FY2029 → FY2030 reflects mature run-rate.
GM expands then plateaus — 1.6T module margin advantage drives Y/Y expansion through FY2028; mature mix levels off.
Capex accelerates then decelerates — Sherman TX 6-inch InP fab build through FY2028; capacity additions taper through FY2030.
Diluted share count grows — Series B Convertible Preferred conversion + employee equity grants. Buyback program (potential post-FY2027 FCF inflection) could partially offset.

Driver assumptions — bull case

Driver	FY2026	FY2027	FY2028	FY2029	FY2030
Revenue ($B)	7.0	8.5	10.0	11.5	13.0
YoY growth	+20%	+21%	+18%	+15%	+13%
Non-GAAP GM	40.0%	41.5%	42.5%	42.5%	42.0%
Non-GAAP OM	22.0%	24.0%	26.0%	26.5%	26.0%
Capex ($M)	650	850	950	800	700
Operating cash flow ($M)	1,000	1,400	1,800	2,300	2,700
Free cash flow ($M)	350	550	850	1,500	2,000
Diluted share count (M)	192	200	205	205	200

Bull-case rationale

AI capex acceleration sustains — hyperscaler capex CAGR holds 30%+ through CY2028; Coherent’s D&C revenue grows 25–30% annually.
CPO ramp is additive — CPO source-laser revenue + CPO module-assembly revenue add $1.0–1.5B annually by FY2028.
GM expansion compounds — 1.6T margin advantage holds, 6-inch InP cost benefit fully realized, mix shift continues.
OM expansion via operating leverage — opex flat-to-modestly-up while revenue scales 80% over 5 years.
Buyback inflection FY2029 — post-NVDA balance-sheet flexibility supports share-count optimization once FCF inflects.

Driver assumptions — bear case

Driver	FY2026	FY2027	FY2028	FY2029	FY2030
Revenue ($B)	6.4	6.6	7.0	7.3	7.5
YoY growth	+10%	+3%	+6%	+4%	+3%
Non-GAAP GM	38.0%	36.0%	35.0%	35.5%	36.0%
Non-GAAP OM	18.5%	16.0%	15.5%	16.5%	17.0%
Capex ($M)	550	500	400	350	350
Operating cash flow ($M)	800	700	750	850	900
Free cash flow ($M)	250	200	350	500	550
Diluted share count (M)	195	205	215	225	230

Bear-case rationale

AI capex digestion CY2027 — hyperscaler capex moderates to 10–15% growth; Coherent’s D&C revenue stalls.
ASP compression on EMLs — third-source emerges or NVDA in-sources partially; merchant pricing power weakens.
CPO timing slip — CPO commercial volume pushed from 2027/2028 to 2028/2029; capex-build returns delayed.
Industrial stays weak — China-capex weakness extends; Industrial segment flat-to-down through FY2027.
Capex retrenchment — Coherent reduces fab build pace under demand-digestion scenario; lower revenue but improved cash-flow ratio.

DCF valuation summary

Discount rate: 10%. Terminal-growth: 3% (base), 4% (bull), 2% (bear). Mid-2030 terminal value calculated as FY2031 FCF × (1 / (discount – growth)).

Scenario	Sum of FY2026–30 PV of FCF ($B)	Terminal value PV ($B)	Enterprise value ($B)	Less net debt ($B)	Equity value ($B)	Per share ($)
Bull	$4.8	$35–45	$40–50	$1.0 (post-NVDA equity)	$39–49	$190–245
Base	$3.0	$14–18	$17–21	$1.5	$15.5–19.5	$75–100
Bear	$1.8	$8–11	$10–13	$2.5	$7.5–10.5	$33–47

The DCF-implied per-share values are substantially below the current $310 trading price — this is the structural challenge of DCF for AI-photonics names: the market is pricing in execution that is more aggressive than even the bull-case DCF assumes through FY2030. This is consistent with multiple-based valuation showing market-implied FY2028 EPS in the $9–11 range with 35–45× P/E.

The DCF framework is more useful as a sensitivity / risk-quantification tool than as a price target in this regime. The right framing: what FCF growth from FY2030 onward would be required to justify $310? Answer: approximately 8–12% FCF growth in perpetuity, which is plausible if Coherent successfully captures CPO transition and continues to expand share within an AI-cycle that endures into the 2030s.

NVDA customer-concentration scenarios

NVDA’s multi-billion-dollar purchase commitment is the single most material customer-concentration variable. Three scenarios:

Scenario	NVDA share of D&C revenue (FY2028)	Risk profile	DCF impact
NVDA-aligned (committed volume realized)	25–30%	Concentrated but committed	Bull / Base case
NVDA partial (commitment scaled but not full)	20–25%	Modest concentration	Base case
NVDA digestion (commitment renegotiated)	15–20%	Less concentration but lower revenue	Bear case
NVDA in-sources (purchase commitment terminates)	<10%	Major thesis-breaking	Far-bear case

The far-bear case (NVDA terminates the partnership and in-sources optical components) would require the March 2026 partnership to be unwound. As of April 2026, the structural signal of the bilateral $4B equity investment is NVDA committed to merchant supply through 2028.

Sensitivity table — base-case key drivers

Variable	-10%	Base	+10%	DCF $/share impact
FY2028 revenue	$7.7B	$8.5B	$9.4B	±$15–20
FY2028 non-GAAP GM	36.5%	40.5%	44.5%	±$25–35
FY2030 FCF	$810M	$900M	$990M	±$8–12
Discount rate	9%	10%	11%	±$10–18
Terminal growth	2%	3%	4%	±$15–22

The largest sensitivities are to gross margin (operating-leverage compounds through OM and FCF) and discount rate / terminal growth (long-tail FCF dominates the DCF). Revenue sensitivity is more modest — Coherent’s value depends more on margin and capital-efficiency than on top-line tilt.