Futurist
Photonics, Space, AI Infrastructure & Robotics Commentary
AXT makes the substrates underneath the AI optical stack, InP, GaAs and germanium, and the market is finally noticing. InP feeds the lasers in 800G and 1.6T transceivers: no InP, no high-speed optics. Only a handful of companies produce these wafers at scale, and as hyperscalers race to upgrade AI networks, the materials layer is getting tight. Sitting at the overlooked bottom of the stack, it could be a 10x play. x.comÂ
AXT's indium phosphide substrate chokepoint gives it pricing potential, though its Coherent agreement caps annual wafer-price increases. Channel checks suggest increases of 50-60% in Q2 2026, 10% in Q3 and over 10% in Q4. With supply agreements to Lumentum and Coherent, AXT probably becomes No. 1 ahead of Sumitomo Electric. A SanDisk-style hike now looks less likely because of the annual cap, whose percentage is redacted. x.comÂ
SpaceX's $40B financing for GPU procurement adds another large, funded source of AI-infrastructure demand, with spending flowing into GPUs, memory, networking and optics. At the same time, InP substrates are seriously short, and Morgan Stanley identifies InP, EML and CW lasers as primary bottlenecks; suppliers that secure raw materials should gain pricing power. Any slowdown looks unlikely. x.comÂ
AXT's bottleneck thesis does not hold, because AXT is not even the number-one player in its market. Sumitomo Electric can bring new capacity online within 18 months. x.com x.comÂ
AXT sits in the optical upstream, where surging AI compute demand meets supply that cannot be built fast enough. Amazon raised 2026 capex to $220B and said even that won't meet demand, with 2027 also short. AXT posted record revenue of $47.6M, up 164% year over year, record indium phosphide revenue of $30.7M and 45% margins targeting 50%+, and is doubling capacity in both 2026 and 2027 yet still can't keep up. x.comÂ
Optics and photonics should be among AI's biggest winners as faster GPU networks need optical connections that suppliers cannot expand quickly enough. Lumentum says some components are sold out through early 2029; Sivers is investing $30M to target more than 100M lasers a year, with operations expected in Q4 2027. Potential US restrictions on Chinese transceivers could reshape supply in 2027. Applied Optoelectronics and Sivers are the favorites. x.com x.comÂ
AXT cannot be the dominant indium phosphide substrate supplier when its customers' supply depends on the Chinese government's export permitting. Lumentum has locked up InP supply for several years with Sumitomo, a larger competitor that does not face the same export restrictions. Doubling down on manufacturing in China is an odd choice given continuous permitting roadblocks. Substrate pricing is unlikely to go parabolic, despite Serenity's claims of 10x+ price increases. x.com x.comÂ
InP substrate demand and pricing still support the AI optics supply chain. Yunnan Germanium reports higher InP volumes from AI data centers and optical communications, plus higher prices. Q3 revenue rose 134.6% year on year, near AXT's guided 136%, but also includes germanium. IQE's H1 photonics grew 45%, partly from US defense funding. AXT's $66m Q3 guide covers only licensed exports or sales needing no license; a miss would more likely reflect licensing. x.comÂ
AXT remains a vital InP substrate bottleneck, and keeping some exposure makes sense because a ton of AI capex flows directly to it, though much is priced in. Transceivers moving from 800G to 1.6T and 3.2T need lasers built on InP substrates, which AXT and Sumitomo supply; demand exceeds supply even as AXT doubles capacity by end-2026. Management sees CPO inflecting late 2027 and beyond. Earnings should improve as backlog converts, though another parabolic move looks unlikely. x.com x.comÂ
Indium phosphide substrates, AXT's business, should never become tight despite explosive demand, because Chinese capacity comes online quickly. InP demand should grow nearly 6x from 2026 to 2030, a 56% CAGR, driven by ultra-high-power CW lasers for co-packaged optics and InP photonic chips. Yet Yunnan Germanium alone should make nearly half of all InP production by 2030, so demand never fully exceeds substrate supply, which is bad for AXT. x.comÂ
AXT supplies the InP substrates that expanding optical manufacturing requires. It supplies every manufacturer, and that demand will take its shares to new all-time highs. Applied Optoelectronics is expanding capacity and selling the most cost-efficient product; a quoted post reports that Lumentum's CEO said his firm is effectively sold out through nearly 2029. x.comÂ
