The AI Investor
AI Stock Investing & Research
Small caps such as AXT that have risen 8,800% in a year at forward P/Es in the hundreds look held by buyers hoping to dump on the next person. Investors should ask who runs them, what the moats are and whether competitors can replicate them; Nvidia's Jensen Huang says most bottlenecks can be solved within a few years, so what happens in 5-10? This pushes back on @aleabitoreddit's claim that AXT controls the materials buildout for photonics. x.comÂ
AXT is absurdly valued at $8 billion, or 31x 2030 estimates, because the market is bidding up anything labeled a bottleneck. Such companies quickly turn from bottlenecks into over-earning commodity businesses, leaving holders with a bad bag. The guide shown from the last cycle puts quarterly revenue at just $26.9 million, and management was smart to have just raised $600 million. x.com x.com x.com x.comÂ
AXT's roughly $9B valuation can't be justified by its fundamentals. Even if revenue grows fivefold from $80M to $400M next year, EBIT would still be below $150M, which doesn't support an enterprise value of $9B or even $5B. Beyond short covering, it's hard to see anyone owning AXT at even half today's valuation, despite @aleabitoreddit's view that its indium phosphide substrates are a bottleneck whose contracts predate price hikes. x.com x.comÂ
AXT is a speculative add on the market's sharp drop, because indium phosphide wafer prices have reportedly risen a lot lately. x.comÂ
AXT looks expensive against its earnings at 28x, versus the roughly 18x chip-equipment makers usually get. At 18x next year's $2.23 EPS, give or take 12%, fair value is $35.26-$44.88, so the $61.64 price is 37% above the high end, with a PEG of 12.09 flagged as bubble territory. The view uses reported earnings and estimates only, without fundamental work. x.comÂ
AXT's permit-backed Q4 outlook weakens the near-term operating objection to the Sell case. Q3 revenue reached $73.4M at 56% GAAP gross margin; management guides to about $90M in Q4 from business permitted or not needing permits. InP contributed $54.3M and backlog exceeds $500M, though much spans years. The remaining test is whether 2027 capacity becomes qualified, permitted shipments at durable margins. x.com x.com x.comÂ
AXT is among the high-growth companies likely to beat 5.2% bond yields: revenue rose 164% year on year and 77% sequentially, and it swung to a profit. As @BULLOFBRITAIN notes, the market is offering 100% growers at a 40% discount because investors want to lock in bond yields. x.comÂ
AXT looks like a shell of Chinese companies at an absurd valuation: about 30x next year's sales and likely over 100x 2027 gross profit for a low-margin commodity business. Its manufacturing and most operations are in mainland China, while its US auditor has no China operations. The stock is up about 67% from last week's secondary pricing, and its only 5%+ holder has filed on just one other stock, a penny stock. x.com x.comÂ
AXT is a good company, but its valuation is currently somewhat high. x.comÂ
AXT holds a critical-materials monopoly hiding in plain sight, because AI needs fiber, fiber needs lasers and lasers need indium phosphide. The stock is volatile. x.comÂ
AXT's bull case hinges on supply rather than demand, and China holds many of the cards. Demand is growing strongly, but China can reasonably be expected to favor its own industry and permit exports only where they serve its broader interests, which argues against overly optimistic forecasts. @larmatrade notes over half of revenue is now domestic Chinese; if half of demand is Chinese, AXT should to some extent be valued like a Chinese company, and the market is likely to price it so over time. … Show more
