Coherent (COHR) has lost momentum in recent weeks, even as the artificial intelligence boom continues and its main rival, Lumentum, has surged. COHR is trading at $239, down 45% from its high for the year. Technical signals suggest the stock could be close to a bearish breakout, even as Marvell Technology reportedly weighs a takeover of Lumentum.
Coherent may benefit from a Lumentum acquisition
Coherent stock will be in the spotlight today as investors react to the latest news involving Marvell Technology and Lumentum. Marvell, which has a market capitalization of over $220 billion, is reportedly considering an acquisition of Lumentum. Lumentum is valued at more than $80 billion and would likely demand a substantial premium, which could make this one of the biggest M&A deals in the sector. Neither company has confirmed the talks.
A deal for Marvell to acquire Lumentum would be bullish for Coherent since the two companies are in the same industry. They both make lasers, optical transceivers, and networking components that enable data to travel at extremely high speeds using light than electric signals.
The main difference between the two is that Coherent has a broader, vertically integrated portfolio, while Lumentum is more concentrated in specialized optical components, high-performance lasers, and optical switching systems. Indeed, Lumentum made a bid to acquire Coherent a while ago.
Depending on the premium that Marvell pays, chances are that investors will use it to value Coherent. Indeed, data shows that Coherent is already a cheaper alternative to Lumentum. It has a forward price-to-earnings ratio of 25, compared to Lumentum’s 40.
Coherent is also benefiting from Lumentum in other ways. In a recent statement, Lumentum said that its products were sold out through 2029. Such a move means that many companies will turn to Coherent for these optical solutions.
Coherent’s business is thriving
The most recent results showed that Coherent’s revenue rose by 34% in the fourth quarter to $2.05 billion, with its gross margin rising to 38.5%. Its net earnings jumped to over $241 million.
The company expects that its revenue growth will continue accelerating this year. Its first-quarter revenue is expected to jump by 45% to $2.3 billion, while its earnings per share is seen coming in at $1.97. For the year, Coherent’s revenue is expected to soar to $10.6 billion, followed by $14.9 billion in the next financial year.
Coherent stock is about to form a death cross
The risk, however, is that technicals suggest that Coherent stock is about to form a death cross pattern. This pattern is characterized by the 50-day and 200-day Exponential Moving Averages (EMA) crossover. If it happens, it could lead to more downside, potentially to the psychological level of $200.
The death cross is possible as the AI industry is facing substantial challenges as investors worry about the bursting of the bubble. If this happens, the stock may drop further towards the psychological level of $200.