COHR

As AI infrastructure expands, companies face multiple bottlenecks beyond chip production, including memory, power, cooling, and connectivity. Seven companies addressing these constraints—Nvidia, Micron, Lumentum, Coherent, GE Vernova, Bloom Energy, and Vertiv—are positioned to benefit as the industry shifts from one bottleneck to another.

Credo Technology (CRDO) and Coherent Corp (COHR) are both capitalizing on AI data center expansion through different approaches. CRDO specializes in high-speed connectivity solutions with forecasted 85%+ revenue growth by FY2027, while COHR manufactures optical components and targets $3B+ quarterly revenues by FY2027-end. COHR receives a Zacks Rank #2 (Buy) rating versus CRDO's #3 (Hold), with COHR considered the better pick despite higher capital expenditure pressures.

Coherent Corp. is expanding its indium phosphide manufacturing capacity to double by late 2026 and more than double by 2027, targeting growing AI data center connectivity demands. The company is developing advanced optical technologies including 400G-per-lane connectivity and energy-efficient solutions. COHR stock has gained 162.6% over the past year with rising fiscal 2027 earnings estimates, currently rated as a Zacks Rank #2 (Buy).

Zacks highlights three Technology Services stocks poised for growth despite the industry facing near-term headwinds. Coherent, GigaCloud Technology, and ScanSource are positioned to benefit from rising AI infrastructure investments, digital transformation, and increasing demand for technology solutions. All three companies hold Zacks Rank #1 (Strong Buy) ratings with strong recent performance and positive earnings estimate revisions.

The Technology Services industry is expected to recover to pre-pandemic levels, driven by rising adoption of remote work, 5G, AI, blockchain, and data security concerns. Three stocks—Coherent Corp., GigaCloud Technology, and ScanSource—are highlighted as strong investment opportunities with Zacks Rank #1 ratings, showing solid revenue growth and strategic expansion initiatives.

Coherent Corp. (COHR) has surged 190% over the past year as a major beneficiary of AI infrastructure demand. The company is ramping 1.6T transceivers and expanding optical subsystems through PhotonLink, with fiscal 2027 revenues projected at $10.68 billion (50% YoY growth) and EPS at $9.38 (67.2% growth). Strong demand visibility extends into 2028, though valuation trades at a premium of 32.06x forward earnings versus the industry's 20.77x.

Coherent Corp. (COHR) has been added to the Zacks Rank #1 (Strong Buy) list on October 1, 2026. The company, a manufacturer of lasers and optoelectronic devices, has seen 10 analysts revise earnings estimates higher in the last 60 days, with consensus estimates increasing to $9.38 per share.

Earnings are expected to grow 67.2% for the current fiscal year with 50% revenue growth projected. The stock has gained 7.1% over the past four weeks.

Palantir Technologies and Coherent Corp are both positioned in the AI and data infrastructure space, but Palantir emerges as the better investment choice. Palantir demonstrates stronger commercial AI momentum with 83% projected sales growth and 115% EPS growth, exceptional margins above 60%, and robust free cash flow generation.

While Coherent offers more attractive valuation and benefits from AI datacenter demand, it faces higher risks from hyperscaler spending cycles and manufacturing execution. Palantir holds a Zacks Rank #1 (Strong Buy) versus Coherent's Rank #2 (Buy).

Applied Optoelectronics stock fell 23.6% this week after Broadcom CEO warned of capital constraints that could slow AI infrastructure spending. The optical component maker, which relies heavily on data center customers for 800G transceivers, faces headwinds from funding concerns among major cloud providers. The stock has declined 64.2% from its 52-week high, compounded by recent shareholder dilution from a $600 million equity offering.

AXT Inc. (AXTI) is experiencing significant working capital pressures as inventory surged 18% to $96.3M by June 2026, absorbing $12.2M in cash. While the company benefits from strong demand, a $100M+ backlog, and substantial liquidity of $748.8M, export permit uncertainties and rising obsolete inventory reserves pose risks. The stock has surged 279% YTD but trades at a premium valuation of 10.1X forward P/S versus industry average of 4.9X, earning a Zacks Rank #3 (Hold).

Waste Connections (WCN) beat Q2 2026 earnings expectations with $1.50 EPS versus $1.35 consensus, and revenues of $2.56B surpassing estimates. The company projects 2026 revenues of $10.02-$10.05B, driven by acquisitions, 5.5%+ core pricing growth, and an AI pricing tool generating $20M in annualized EBITDA benefits with potential for $100M total AI gains. Employee retention improved significantly with voluntary turnover down 17% in 2025.

Applied Optoelectronics (AAOI) saw Q2 data center revenue surge 140.4% with 800G sales up over tenfold, driven by AI infrastructure investments. The company expects strong Q3 growth with revenues of $255-290 million.

However, supply constraints, rising competition, and premium valuation at 5.41X P/S ratio present headwinds. AAOI carries a Zacks Rank #3 (Hold) rating.

Omnicom (OMC) is expected to see 2026 earnings rise 21.4% and revenues grow 49.6%, driven by post-Interpublic acquisition synergies, AI-enabled marketing capabilities, and strong shareholder returns. However, the company faces headwinds from weak advertising trends, $10.2B in long-term debt, and elevated integration costs. OMC currently holds a Zacks Rank #3 (Hold) rating.

Waste Management (WM) reported Q2 2026 revenues of $6.68B, up 4% year-over-year, with adjusted operating EBITDA margin expanding to 30.9%. The company raised 2026 margin guidance and generated $1.10B in free cash flow. However, elevated debt of $23.36B and tight liquidity constrain financial flexibility, with current assets trailing current liabilities.

Verisk Analytics (VRSK) is expanding its insurance capabilities through AI, cloud platforms, and strategic acquisitions, with strong Q2 2026 cash flow growth of 49.7% in operating cash flow and 57.9% in free cash flow. However, the company faces headwinds from elevated debt levels ($4.47B), rising interest expenses ($52.8M in Q2), and increased personnel and legal costs that compressed GAAP net income by 9.8% and margins to 28.4%. The company maintains a Zacks Rank #3 (Hold) rating.

The global hybrid photonic integrated circuit market is projected to grow from USD 2.45 billion in 2025 to USD 6.82 billion by 2035, driven by demand from data centers, 5G infrastructure, LiDAR, and quantum computing applications. North America leads with 38.5% market share, while Asia Pacific shows the fastest growth. Silicon photonics is expected to record notable CAGR, with data communication representing 45.2% of market revenue.

Nvidia is trading at its lowest forward P/E ratio in a decade (14.3x) despite being near 52-week highs. The article argues this presents a buying opportunity, with analyst forecasts suggesting EPS could reach $26 by fiscal 2030.

If the P/E multiple expands from 15x to 22x, the stock could reach $572, representing a 154% gain. Beyond its core data center business (growing 117% YoY), Nvidia is expanding into AI agents, space exploration, physical AI, and autonomous vehicles.