Jay Yoon
Founder & Portfolio Manager of Summit Ridge Capital Management
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
AXT's promoted story does not match reality, with @markflowchatter noting one major customer denied an indium phosphide bottleneck while another signed a seven-year supply deal with AXT's main rival, Sumitomo. The stock's run has been a brilliant pump job by management and FinTwit, and AXT is expected to eventually end up like Valens Semiconductor, now down 50% since Serenity promoted it. x.com x.com 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
AXT's indium phosphide business is at China's mercy, since its expansion inside China lets Beijing decide every line item on every purchase order. Per a report shared by @wallstengine, US officials are pressing China over delayed InP export approvals as the material becomes an AI data center bottleneck, and AXT says export permits are its biggest challenge. The stock was rejected at resistance despite that news. x.com x.com 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
Lumentum and Coherent are investments driven by product iteration, while AXT is a bottleneck trade best treated as speculation. Shortage-driven price hikes on the same parts define a cyclical stock, prices quickly discount shortage expectations, and once profits truly climb it is time to exit. Bottlenecks also push customers to design around them and invite new entrants. Investable companies keep lifting margins through yield gains and new products, driving token deflation while growing revenue. … Show more
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 stays central to the InP substrate thesis because Coherent's 6-inch ramp relieves only its own device capacity and pushes the constraint upstream to substrates. Coherent does not plan to sell InP lasers externally soon, so the merchant shortage persists, which is also the context for Lumentum's long-term agreement with AXT. AXT's InP is made in Beijing, and China's InP export licensing remains despite the topic being raised in the Trump-Xi talks, so permission is the key variable. x.com … Show more
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 looks very bearish on the risk that China stops allowing indium phosphide exports to the US. The same export question raises doubt over whether US companies will even be able to use CXMT DRAM. 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
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
