Shares of optical components company Coherent (NYSE:COHR) declined Wednesday after the stock was downgraded from Buy to Neural at research firm B Riley Securities.
Analysts noted that various optical stocks have appreciated meaningfully in the last month due to the potential impact of artificial intelligence on the optical networking industry.
Coherent, for example, is higher by about 25% in the past month. Applied Optoelectronics (NASDAQ:AAOI) is higher by 110% over the same period. However, analysts don’t believe these two companies are in Nvidia's (NASDAQ:NVDA) supply chain.
“In short, it appears Nvidia, which seems to have a significant lead on competition, will be able to provide most of the networking equipment, including switches and routers. As such, only those that are in NVDA’s supply chain will benefit from the surging AI demand, in our view,” they said.
“These moves would have been fully justified, except NVDA spent $7B to acquire Mellanox (NASDAQ:MLNX), which makes various networking devices, including optical transceivers. This is why we don’t believe COHR and AAOI are in NVDA’s supply chain, since NVDA will use Mellanox products.”
Given the surge in shares, and with a lack of compelling catalysts near term, the analysts downgraded Coherent to Neutral, while maintaining a $47 price target.
“We are looking for a better entry point,” they concluded.
Shares of Coherent declined by over 6% following the downgrade but recovered some losses heading into mid-day.