Research & Invest
Investor, Institutional Asset Management Background
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 one of the worst stocks to be pumping on fundamentals, because the bull thesis only works if it someday reaches $1 billion in revenue, not $100 million. The price can stay disconnected from fundamentals if shorts get squeezed, but Lumentum, Coherent, Applied Optoelectronics, Micron and AMD are far better optics and chip calls. 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
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 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 is a good company, but its valuation is currently somewhat high. 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 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 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 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 is one of the charts highlighted as a long in the weekend newsletter, alongside Applied Optoelectronics. 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
