U.S. News Money recently asked me to weigh in as an expert for their piece, ‘5 Best Photonics Stocks to Buy for 2026‘ — and I was quoted on Coherent Corp (COHR), one of the companies riding the wave of AI data-center demand.
Here’s my quote, exactly as it ran:
“Coherent offers the strongest margin expansion and potential multiple re-rating opportunity,” says Liliya R. Strong, founder at Stocks for Women and a 15-year Wall Street equity research veteran. “Investors may benefit from both earnings growth and a higher valuation if profitability and cash generation begin to resemble Lumentum’s.”
Now — if you read that and thought, ‘that sounds smart but I have no idea what half of it means,’ you’re exactly who I wrote this for. Expert quotes come out in analyst-speak. My whole job is translating that language into something you can understand over coffee. So let’s go through what I actually said, piece by piece.
What are photonics stocks?
Photonics stocks are shares of companies that work with light — lasers, fiber optics, and the components that move data as light instead of electricity. Think of the internet’s plumbing: when you stream a video or ask an AI chatbot a question, that information travels through fiber-optic cables, and photonics companies make the parts that keep it moving. The simplest mental image: every text, video call, and AI answer you send travels as pulses of light through glass fibers thinner than a hair. Companies like Coherent and Lumentum make the lasers and components that generate, guide, and detect those pulses. When demand for data explodes — which is exactly what’s happening with AI — demand for these components explodes with it.
Why are photonics stocks getting so much attention right now?
Artificial intelligence runs in massive data centers, where thousands of chips constantly trade enormous amounts of information. The old copper wiring can’t keep up — it’s too slow, too hot, and too power-hungry at that scale. So data centers are switching to optical connections that use light, and investors are betting the companies supplying those parts will grow fast.
This is the core story behind the whole sector. AI models need thousands of processors working together as one giant brain, and those processors must talk to each other constantly. Copper wires — the same basic technology as the cables behind your TV — hit physical limits: they get hot, they waste power, and they can’t carry enough data fast enough. Light-based connections solve all three problems at once. So as AI data centers multiply, the companies making optical parts find themselves holding something close to a golden ticket.
What does “margin expansion” actually mean?
In my U.S. News quote, I said Coherent offers ‘the strongest margin expansion.’ In English: a company’s margin is what it keeps from each dollar of sales after costs. Margin expansion means it’s keeping more of each dollar — because it’s charging better prices, making things more efficiently, or selling higher-value products. It’s a sign of a strengthening business.
Here’s a mom-friendly analogy: imagine you sell homemade candles. At first, each candle costs you $8 to make and you sell it for $10 — you keep $2. Over time you buy supplies in bulk, streamline your process, and start selling a premium line for $15 that costs $9 to make. Now you keep $6 per candle. Your margins expanded. The business didn’t just get bigger — it got better.
That’s what analysts look for in companies like Coherent: not just growing sales, but keeping a bigger slice of every sale. When I said Coherent has the strongest margin expansion opportunity, I meant its profitability has meaningful room to improve — and improving profitability is one of the most powerful things that can happen to a stock.
What is a ‘multiple re-rating’?
This is Wall Street jargon for how much investors will pay for each dollar of a company’s earnings. When a company proves more profitable and reliable than expected, investors may pay a higher price for the same earnings — the stock gets ‘re-rated’ upward. My point was that Coherent’s improving profitability could trigger exactly that reassessment.
Think of it like a neighborhood restaurant. For years, everyone treats it as a decent $15-a-plate spot. Then the chef wins an award, the food gets noticeably better, and suddenly people happily pay $30 a plate for the same tables. The restaurant didn’t add tables — the market just decided each table was worth more. A ‘multiple re-rating’ is the stock market version of that: investors decide a company’s earnings deserve a richer price.
In my quote, I suggested Coherent could benefit twice: once from earnings actually growing, and again from investors paying more for each dollar of those earnings as profitability starts to look more like its peer Lumentum’s. Two engines instead of one.
How does an analyst actually evaluate a company like this?
In my 15 years of equity research, I started with four questions, not hype. Is there a funded backlog — real orders with delivery dates, not promises? How concentrated are its customers? Are gross margins improving quarter after quarter? Is it converting profits into actual free cash flow? Those answers tell you more than any headline.
Let me unpack each one, because these four questions work for any company you’re curious about:
- Funded backlog. Does the company have real, paid-for orders waiting to be filled — with actual delivery dates? A backlog of signed orders is future revenue you can almost touch. Vague ‘strong demand’ without orders is just a story.
- Customer concentration. If one or two customers make up most of sales, losing a single buyer could sink the company. Diversified customers mean resilience. This is especially important in photonics, where a handful of giant tech companies buy most of the equipment.
- Gross margin trend. Are margins improving quarter after quarter, like we discussed above? One good quarter can be luck. Four in a row is a pattern — and patterns are what analysts trust.
- Free cash flow. Profits on paper are nice; actual cash in the door is better. Free cash flow — the cash left after the company pays for operations and equipment — is what funds dividends, buybacks, and survival during downturns. I always ask: are the profits turning into cash?
Notice what’s missing from my list: headlines, hype, and hot tips. Analysis is quiet work. It’s reading the numbers and asking whether the story holds up.
What does this mean for you as a beginner investor?
Honestly? You may never buy a single photonics stock, and that’s completely fine. Picking individual stocks is genuinely hard — even professionals get it wrong. But understanding why the market cares about a trend makes you a calmer, smarter investor. And if you want exposure to big trends like AI, a diversified index fund gives it to you without picking winners.
I want to be direct with you, because this matters: my quote in U.S. News was analysis, not a recommendation. I was explaining how I evaluate a company, not telling anyone to buy it. The financial media loves ‘5 best stocks’ framing, but my actual philosophy — the one I teach — is far less exciting and far more effective: own broad, diversified index funds, automate your contributions, and let time and compounding do the heavy lifting.
Here’s the beautiful part, though. Learning to think like an analyst — asking about backlogs, margins, and cash flow — makes you immune to hype. The next time someone tells you about a ‘can’t-miss’ stock, you’ll know exactly which questions to ask. That skill is worth more than any single stock pick.
You don’t have to buy the trend to understand the trend — and understanding is what keeps hype from rushing you.
Questions, answered
What are photonics stocks?
Photonics stocks are shares of companies that make components using light — lasers, fiber-optic parts, and optical networking equipment. These parts carry data as light signals through fiber cables, which is faster and more efficient than electrical signals through copper wire. They’re essential to the internet, telecommunications, and increasingly, AI data centers.
Why are photonics stocks rising?
AI data centers need to move enormous amounts of data between thousands of chips, and old copper connections can’t keep up — they’re too slow and power-hungry at that scale. Data centers are switching to light-based optical links instead. Investors expect the companies supplying those optical components to grow quickly, which has driven their stock prices higher.
Should beginners buy individual tech stocks?
Most beginners are better off not picking individual stocks — it’s genuinely difficult, even for professionals with decades of experience. A single stock can swing wildly on news you can’t predict. Starting with diversified index funds gives you exposure to hundreds of companies at once, which smooths out the bumps while you learn.
What does margin expansion mean?
Margin expansion means a company is keeping more profit from each dollar of sales over time. If it used to keep 20 cents per dollar and now keeps 30, its margins have expanded — usually because it’s charging better prices, operating more efficiently, or selling higher-value products. Expanding margins often signal a strengthening business.
How can beginners invest in AI trends without picking stocks?
You don’t need to pick winning AI stocks to benefit from the trend. A broad index fund already holds the large companies driving AI — chipmakers, cloud providers, and data-center builders — so you get exposure automatically. Starting diversified means one wrong pick can’t sink you.
Liliya Strong is the founder of Stocks for Women, a Columbia Economics graduate, and a 15-year Wall Street equity research veteran. A bestselling author, she teaches women to invest with clarity and confidence — in plain English, with no jargon and no hype.
This article is for education only and is not personalized investment advice. It does not recommend buying or selling any security. Investing involves risk, including possible loss of principal.
