COHR Sells on Strong Earnings: Andrew Graham Sees Buy Opportunity

bit more cautious, weighing how much future growth could already be priced into shares. But for more on the next phase of this AI infrastructure spend in Coherence latest report we now like to welcome in Andrew Graham, Managing Partner at Jackson Square Capital. Andrew, thanks so much for joining the show today. Coherent delivered, I mean, relatively strong results, but the stock is lower and we've seen a bit of a mixed reaction. So what were investors looking for that say they didn't necessarily get from these numbers. They got it all. I mean you got all the buy side bars, all the KPIs, all the key metrics were exceeded in coherence, fiscal Q4, print. And so, yeah, I mean, the reaction is the stock has rallied 60% in the last ten sessions. And so people who are buying it for the earnings print are now just taking it off as sort of a natural market internal that goes on all the time. And this is a stock you should be adding not not selling. Andrew, do you think that this is a reaction and it's a hey, look, we have no idea. We don't have an alternative universe, at least that I know of that we can go play this a different way. But the direct comparison the next day to Lumentum did that kind of work against this a little bit? A little bit. I mean, I think coherence is probably the better name. I mean, we own them both, but coherence got its own vertically vertically integrated indium phosphide manufacturing capacity. Indium phosphide is the base material you need to make the substrate for optical transceivers and co-packaged optics and so forth. And they've been ramping this for the last couple of years. And they just took another big step forward. So right now, optical demand outpaces supply by by a large margin. And, and coherent is probably the best position to be able to beat that surge in demand because they produce their own indium phosphide, they have better margins as a result and so forth. And it's really beginning to ramp now. So in the second half of the year, you'll see their production of indium phosphide double by the end of Q1 27. And then you see a double again by the end of year end 2027. And so if you're doubling your indium phosphide capacity, you have an opportunity to unlock that pent up demand, which is in the order book. By the way, 2027 is fully booked out with their expectation for raw material production. You're looking at revenues following that indium phosphide ramp. So if you're going to double your revenues between now and the end of Q1 of 27 and double it again at the end of 27, that's a compelling investment opportunity, I think, in anyone's mind. Okay. And so outside of that opportunity, where are you seeing some more opportunities, say, in optical networking over the next coming years? So yeah, we own Lumentum. We own coherent within optical in particular, you know, Corning doesn't really have the same margins that that these other guys have. So while we own a small bit of it and are sort of our dividend yielding lower beta portfolios, it's not something that I expect to really jump off the map. Sienna is another name that we flirt with from time to time, but the entire networking and equipment space is just very attractive in our mind. And so you had Cisco report as well last night. And I think the fact that it's lower because their guidance on margins was, was a little bit lower than expected, has everything to do with the fact that they're delivering more hardware and they have to deliver the hardware to meet the demand. And that's both at the data center level and, and at the campus switch market, which needs an upgrade desperately. And that's, that's a big driver. So positive on a lot of names and networking equipment, but we put coherent near the top of the list. Lumentum. You know, right behind it. Andrew. I got to kind of, I guess, an investment manager question for you. You alluded to the fact that this stock moves and it moves around dramatically. You make a pretty compelling case for the space in general. But in order to realize those things, you got to weather some of the volatility. So my question is from sort of a capital management standpoint, how does someone like yourself or your clients for your family, for yourself, kind of weather that volatility and kind of remain convicted if you are through sort of the tough times as well as the good? Yeah, stay close to the story. I mean, you really have to follow these, these stocks closely. And so everything I mean, a lot of sell side sales, sales and trading desks will send you or, you know, we're on their customer list are sending us, you know, just little rumors and details and news headlines and things like that that we may not, you know, ordinarily be able to see on our own. That helps a great deal. But also when we add a position, we're adding it when it's short term oversold, and we have a measure for that. I've been using it for whatever, 30 of my 41 years in this business, and it just helps a great deal. So we add we add length when these names are short term oversold. And that gives us, I think, conviction, right, in the fact that there's going to be immediate upside as well as long term upside. So we want to get started off on the right foot. Okay. So say beyond just coherent in its latest report and momentum and all the volatility that has been the week that is for earnings. What other AI infrastructure names stick out to you right now. And of course why. Well, so I thought I was just really struck by the inflection in some of these software stocks. And I would characterize them as software for the inference economy. Cloudflare comes to mind. Twilio, Shopify, maybe snowflake, of course, which has yet to report, but I mean, they're just jumping off the page. So something's going on here and we haven't done quite enough work yet, I don't think. But if you look at Cloudflare, they're they're, you know, total new sign signups are 2 million in Q2 alone for their, for their developers product. And they did 1.5 million total in all of 2025. So there's a big inflection going on there. You look at Shopify as another anecdotal, you know, sort of example, they're, you know, average daily users, I think they call them average daily marketers or something like that is up 3.6 times year over year in Q2. So there's an agentic thing going on here that I don't fully understand, but you need to pay attention to it. You can see it in the price charts of things like Shopify and Twilio and, and Cloudflare, but it's a big multiplier. It's multiplier, excuse me, it's exponential and it really needs and deserves attention. You also mentioned in your notes, Palo Alto Networks can't help but, you know, overlook how impressive that stock's been. I know CrowdStrike is on your list. Another cybersecurity name that's done quite well. But then a name that, you know, in my mind I kind of lump in that group is Zscaler. And it's done pretty awful. What do you think is distinguishing some of these different cybersecurity names in terms of performance right now? I think it's the broader suite of products is what happens. So Palo Alto and CrowdStrike have been aggregating all these different pieces of the security stack, and they offer the most integrated product suite. And so Palo Alto is probably the one I think that's going to come out better post earnings than maybe CrowdStrike, where expectations are super high. But either way, both are names that we'd own. I think the, you know, the driver, of course, corporate America, I don't think is going to be scrimping on spending money on security when open source models, whether they're in China or the United States, are starting to kind of push up against the frontier model capabilities of cloud mythos. And, and like, there's just a lot of vulnerabilities there. And I and, and spend is not going to be the issue. So we think those stocks are both, both those names are up and to the right. And Zscaler is just a name that just hasn't caught our attention yet. And the reason for that is that it's not quite doesn't have quite the the broad sweep that the other two have. Okay. And good point. Good place to leave it. Really appreciate it. A