Coherent reported quarterly earnings that were in-line with Wall Street's expectations, with gross margins increasing slightly. The optical networking company is benefiting from the artificial intelligence data center boom -- but shares fell 7.74% anyway.

Coherent posted adjusted earnings of $1.41 a share for the fiscal third-quarter, compared to 91 cents a year ago and Wall Street's $1.40 a share prediction. The company's quarterly revenue grew 21% to $1.81 billion, slightly topping the analyst consensus estimate for revenue of $1.78 billion, according to FactSet.

Gross margin came in at 39.6% up from 38.5% a year ago. In February, Coherent forecast gross margin of 38.5% to 40.5% for the quarter.

For the fiscal fourth quarter, Coherent guided for earnings of $1.52 a share to $1.72 a share with revenue between $1.91 billion and $2.05 billion. Wall Street has been calling for fourth-quarter profit of $1.55 a share on $1.913 billion in sales, according to FactSet. The company also predicts gross margin of 41% in the fourth quarter, increasing sequentially.

Coherent shares sank 6.5% in after-hours trading after gaining 2.6% to $344.42 in Wednesday's regular session. The stock has advanced 86% this year and joined the S&P 500 in March as part of the index's quarterly rebalancing.

Coherent and peer Lumentum have both benefited from a surge in hyperscaler capital spending that has boosted their share prices. The optical networking companies make the technology that allows AI processing chips to communicate with each other.

"We delivered another quarter of strong financial performance, with accelerating revenue growth, expanding margins, and improving profitability, driven by exceptionally strong demand across our datacenter and communications businesses," CEO Jim Anderson said.

"As AI data center infrastructure continues to scale, we are rapidly expanding capacity to meet demand," Anderson added. "We believe Coherent is uniquely well positioned to capitalize on this multi-year growth opportunity."

J.P. Morgan analysts Meta Marshall and Antonio Jaramillo on April 30 wrote that the focus on Coherent's earnings will be on margins and whether the company is "able to capitalize on the tightness in the market for optics.

In March, Nvidia announced it was investing $2 billion each in both Lumentum and Coherent, along with multibillion-dollar purchase commitments with the two companies.

Lumentum late Tuesday reported mixed fiscal third-quarter earnings results with sales surging, but slightly missing Wall Street's lofty expectations. Shares declined 5% to $944.28 on Wednesday, but a slew of firms hiked Lumentum's stock-price targets.

Meanwhile, Corning, the glass and fiber maker, and Nvidia announced a partnership Wednesday to drastically expand U.S. fiber and optical connectivity production.

"Investors have been more interest in COHR as of late," Marshall and Jaramillo wrote, but added they did not see the fiscal third-quarter report as a meaningful catalyst for the stock.