Race for AI Investments: How Coherent Corp. Compares

The current earnings season has set high expectations among investors: How profitable are the investments in Artificial Intelligence (AI) really at S&P 500 companies? According to a Reuters report, analysts anticipate a slowdown in earnings growth, with the profits of S&P 500 companies expected to rise by 5.3% year-over-year—a noticeable decrease from the previous quarter's 13.2%. Technology and communication services, in particular, could see significant growth, with projected earnings increases of 15.4% and 12.3%, respectively. Since last year, AI-focused companies have dominated headlines and significantly propelled the market, with the S&P 500 already up about 21% this year. Howard Chan of Kurv Investment Management and Solita Marcelli of UBS Global Wealth Management reflect on the importance of monetizing AI initiatives by major corporations. While companies like Meta shine with strong sales figures, others like Google face the challenge of profitably integrating their AI expenditures. Despite a high valuation of 22.3 times future 12-month earnings estimates, there are hopes that third-quarter figures might justify the current stock valuations. The semiconductor segment, in particular, remains a hot spot for AI investments. Coherent Corp., a leading developer of optoelectronic components, ranks 28th among currently trending AI stocks. Particularly, the 800G transceiver product, which processes a lightning-fast 800 gigabytes per second, is attracting attention. As stated by CEO Chuck Mattera, this product significantly contributed to the impressive 50% growth in non-GAAP EPS. Coherent also expects strong earnings in the future, with AI investments projected to yield returns through the fourth quarter of 2024 and beyond, according to Mattera. Nonetheless, according to an internal ranking, there are more promising AI stocks with higher return potential and faster value appreciation.