Venu
Position Trader, Market Leaders, Fundamental/Technical Analysis
AXT makes the indium phosphide substrates needed for high-speed data center connectivity, making it an AI infrastructure and optical connectivity play. EPS is expected to grow from $0.86 in 2026 to $3.29 by 2028, nearly 4x in two years. The chart is building the right side of a cup base. 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
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
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 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
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
AXT's upside looks capped because its valuation already prices in a near-flawless indium phosphide capacity ramp. Doubling its ~25k wafers a year by end-2026 and again by end-2027 gives ~100k, about 4x, likely with some multiple compression. Even with ~58% growth to 2028, 60% gross-profit growth after and a 20x EV/GP multiple, EV reaches only ~$6.9B in five years versus $6.1B now. Only surprise capacity beyond 2027 changes the math; Soitec, at 19x EV/GP, is the better play. 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 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 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 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
