Deep Sail Capital
Founder & CIO of Deep Sail Capital, Long/Short GARP, Quality/Growth/Micro-Caps
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 a good company, but its valuation is currently somewhat high. x.comÂ
AXT is one of the charts highlighted as a long in the weekend newsletter, alongside Applied Optoelectronics. x.comÂ
AXT priced its secondary offering a steep 22.5% below the prior close, another sign the company is less legitimate than its choke-point story suggests. It follows the appointment of a CFO who had served a five-year officer ban. 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 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'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 looks good on the dip because its blowout quarter has de-risked the stock. x.comÂ
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