Riding The AI Rockets; a round-up of the hottest US stocks

A subscriber drew my attention to this one some time ago, and it has risen strongly since then. Does the chart show a breakout from nearly 40 years of upward-sloping consolidation, or is that just me choosing to see it that way? It looks promising, and Coherent is an exciting business, perfect for the Age of AI.

Our Data Center and Communications segment continues to be the primary driver of our growth and accounted for 75% of total company revenue in Q3. Growth in this segment accelerated again this quarter with revenue increasing more than 40% year over year. Segment performance was driven by both accelerating demand and strong execution across our product portfolio. In our data center business, revenue increased 13% sequentially and 37% year over year, representing a second consecutive quarter of double-digit sequential growth. We expect data center growth to further accelerate in the current quarter, supported by exceptionally strong demand, improving supply, and continued progress in our capacity ramp.

Demand in our data center business remains exceptionally strong and broad-based across multiple customers and product categories. We expect the accelerated growth in the current quarter to be driven by both transceivers and OCS systems. Within transceivers, we expect growth to be driven by both 800G and 1.6T. In particular, we expect 800G revenue to grow year over year in calendar 2026, while 1.6T transceivers ramp rapidly through the balance of this calendar year and into next year as a broad range of customers adopt 1.6T. Given the exceptionally strong demand environment and the industry-wide constraint in indium phosphide, capacity expansion remains one of our highest priorities.

Importantly, we continue to make excellent progress on our 6-inch indium phosphide ramp, which is a key driver of our long-term capacity expansion and a meaningful differentiator for Coherent, Inc. We are now seeing the benefits of this ramp in both revenue and margin, and we expect those benefits to increase further over the coming quarters. We remain on track to achieve our goal of doubling internal indium phosphide output capacity by the end of this calendar year. Based on current execution, we now expect to reach that milestone one quarter earlier than originally planned. We also expect to more than double our internal indium phosphide capacity again by the end of calendar 2027.

We believe CPO represents more than $15 billion of incremental addressable market opportunity. In March, we announced a strategic partnership with NVIDIA focused on multiple CPO-related products and solutions. This partnership includes both NVIDIA’s $2 billion equity investment in Coherent, Inc. and a multiyear supply agreement extending through the end of the decade. The agreement covers multiple CPO-related products including our high-power CW laser, and provides meaningful long-term visibility into future demand. More broadly, our CPO opportunity is supported by the breadth and depth of Coherent, Inc.’s photonic technology platform. We believe our breadth of photonic technology and our manufacturing scale position us very well to meet a broad range of customer requirements across key components, subsystems, and higher-level assemblies.

The company is understandably optimistic.

We really believe the current June quarter represents a new inflection point in our revenue growth rate moving forward—so faster growth this quarter, and as we look forward into fiscal 2027, which starts in July, we expect our fiscal 2027 growth rate to be above fiscal 2026. On the demand side, it looks exceptional right now—both in terms of the degree of demand and also our visibility.

It is an incredible time for companies like Coherent.

Bookings in the prior quarter were up substantially from the previous quarter—record bookings—an incredible amount of backlog, and we have orders that extend out into calendar 2028. We have tremendous demand ahead of us and great visibility. Demand is coming from places you would expect—certainly data center growth, both transceivers with some of the new growth vectors we are bringing on, as well as communications. On the supply side—that is really more of our focus—demand looks great, and we are ramping supply very quickly. This quarter and moving forward, we are bringing on substantially more capacity over the coming quarters. The best single example is the indium phosphide capacity coming online.

I am what you might call a naive optimist. When I see companies talking like this, I don’t try to second-guess it, parse the details, look for the weak points and tell myself that it will all end in tears. I just believe what they say and tailor my actions accordingly. Trusting fool, you might think, but the alternative is either to sit on your hands and miss great opportunities or look for sure things that don’t exist in the stock market.

As you can see from the chart, AI is what I call an AI rocket, a company supplying hardware into a booming data centre infrastructure market. There are plenty of them. Below are some that I have found, most of which have already been recommended in Quentinvest.

Share Recommendations

Broadcom AVGO

Credo Technology CRDO

Ciena CIEN

Marvell Technology. MRVL

SanDisk. SNDK

Kioxia. 285A

Samsung Electronics LSIN

SK Hynix 000660

Dell Technologies. DELL

ARM Holdings ARM

Micron Electronics. MU

Western Digital Corporation. WDC

Seagate Technology Systems. STX

Lumentum. LITE

Advanced Micro Devices. AMD

Tower Semiconductor. TOWR

LAM Research. LRCX

TTM Technologies. TTMI

Corning Glass GWR

Monolithic Power MPWR

Intel Corporation. INTC

Nokia NOK

Taiwan Semiconductor. TSM

Coherent Corp COHR

As you can see, I have flattened this chart. I do this to emphasise the breakout and also to show what the chart might look like, a year or two from now, if the shares climb much higher. It seems obvious now that these shares were a strong buy back in the summer of 2024. But back then, the chart did not look at all like this. It is because the shares have risen so much that we know what a breakout that was. We need to learn to recognise these breakouts when they happen.

The company is well placed.

At TTM Technologies, we are focused on designing and manufacturing complex products and solutions in 2 strategic directions. The first is advanced interconnect, which includes highly complex printed circuit boards, substrates and advanced packaging. The second strategic direction built on our advanced interconnect technology to design and manufacture sophisticated modules, subsystems and systems. Examples of this include our RF modules, thermal and power management systems etch and AI processing products as well as complex subsystems and fully integrated mission systems. We believe the future of electronics lies in speed to market, high reliability and efficient technology interim.

The markets in redo business continue to demand highly complex technology solutions in an increasingly compact size and footprint. Our strategy is to stay at the cutting edge of advanced interconnect technologies through innovation and continue to move up the value chain into complex modules and subsystems that combine sensors, actuators RF and Photonics. We engaged early with our customers to ensure alignment on product development and speed to market while also enabling optimal management of their complex supply chains. From a demand standpoint, we are experiencing healthy multiyear tailwinds due to our participation in 2 key megatrends currently driving economic growth, artificial intelligence and defense.

We previously stated that approximately 80% of our net sales are related to these 2 megatrends, and that this puts us in a unique position to benefit our investors. Our ability to seize these organic growth opportunities requires our continuous focus on technological innovation as well as expanding our capacity across our strategic footprint. We are further investing capital and resources to take full advantage of these opportunities today and in the future through our global footprint, which offers our customers manufacturing options across 24 sites located in China, Malaysia, Canada and the United States.

We stand well positioned to support this growth across our end markets, and we are tracking well ahead of our previously communicated plan to grow revenues 15% to 20% per year for the next 3 years and to double our earnings from 2025 to 2027, which were closed that were reiterated on our February 4 earnings call. In our commercial segment, we are highly focused on supporting the demand wave of artificial intelligence in the data center and networking end markets where customer demand has materially accelerated.

This is a company at the top of its game and with powerfully supportive tailwinds. (see above)

Non-GAAP EPS of $0.75 per diluted share was a 50% improvement year-on-year.

All these companies have similar stories, if not even more exciting. This is a crazy time to be investing in US stocks.

Strategy – Capital Into Income

If you keep pyramiding on a leveraged account, you are on a suicide mission. Don’t I know it. It is exciting, but it is bound to end in tears. A better idea is to start with maximum leverage and, if all goes well and your chosen stock or stocks climb, let the leverage fall. At some point, when you feel you are well ahead of the game, you can take some of those gains as income. In effect, what you are doing is borrowing against the increasing value of your holdings, but if you do this based on a forward bet in a spread betting account, as far as I can tell, there are no interest charges on this loan. I will check with IG because that sounds too good to be true.

At our age, most of us need income more than an appreciating portfolio, though if we have chosen wisely, we can have both. We can, in the famous words of our glorious former leader, Boris Johnson, be pro having cake and eating it.