Coherent (COHR) Expands Texas Facility, Boosting AI Optics

Coherent (NYSE: COHR) has officially broken ground on an expanded manufacturing facility in Sherman, Texas, bolstering its position as a critical supplier for NVIDIA’s AI infrastructure. The site, already home to the world’s first 6-inch indium phosphide (InP) wafer fab, will scale production to meet surging demand for high-speed optical components essential to AI and data center operations.

The expansion is backed by $50 million in CHIPS Act funding, alongside $17 million from the Texas CHIPS program and local economic development incentives. This investment underscores the U.S. government’s push to expand semiconductor manufacturing domestically, reducing dependence on foreign supply chains amid geopolitical tensions.

“AI runs on compute, but it scales on connectivity — and Sherman is where that connective tissue gets built,” said Coherent CEO Jim Anderson during the groundbreaking event, which also featured NVIDIA CEO Jensen Huang. The upgraded facility is expected to support over 550 direct jobs and thousands of indirect roles.

Why Sherman, Texas Matters

Indium phosphide is a cornerstone material for the advanced optical components that underpin AI data centers, such as lasers and photonic transceivers. These components enable the high-bandwidth, low-latency connections required to link processors across data centers, where traditional copper wiring falls short.

Coherent’s shift from legacy 3-inch to 6-inch InP wafers quadruples production efficiency, lowering costs and meeting the explosive demand driven by NVIDIA’s AI ambitions. Notably, NVIDIA has invested $2 billion into Coherent for R&D, future capacity, and product commitments, cementing their two-decade-long partnership.

Macro Trends Driving Demand

Artificial intelligence is reshaping industries, but its infrastructure hinges on optical technologies. Silicon photonics and InP-based components are critical as signaling rates climb and data centers grow in scale. For instance, NVIDIA’s NVL576 system, which links 576 GPUs across eight racks, relies on optical interconnects to bypass the limitations of copper.

Geopolitical factors also play a role. China’s restrictions on indium phosphide exports, implemented in early 2025, have tightened global supply chains, heightening the importance of domestic production. Coherent’s Sherman fab addresses this gap, providing a secure source of advanced optical components for U.S.-based AI deployments.

Market and Investment Implications

Coherent’s strategic expansion aligns with NVIDIA’s broader commitment to develop $500 billion worth of AI infrastructure in the U.S. The Sherman facility directly supports NVIDIA’s data center growth, making Coherent a key player in the AI boom.

Investors should note that Coherent’s focus on scaling InP production positions it to capture a larger share of the $74 billion AI optic market, particularly as hyperscale data centers proliferate. In May 2026, Coherent reported record quarterly results, attributed to rising demand for AI optical infrastructure. The company plans to double its InP output capacity by the end of 2026, a timeline that aligns with NVIDIA’s aggressive AI hardware rollouts.

However, risks remain. The global indium phosphide supply chain remains thin, and any delays in scaling production could impact Coherent’s ability to meet demand. For traders, Coherent (COHR) and supplier-related plays in the AI optic space could warrant closer attention as the CHIPS Act funding accelerates production timelines.

“Today marks an important milestone — not just for Coherent, but for American manufacturing and the future of AI infrastructure,” Anderson emphasized. With Sherman at the heart of the AI optics buildout, Coherent’s role as an industry linchpin is becoming increasingly evident.

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