Simjo
Fundamental Equity Analyst, Geopolitics
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 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 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 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 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
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'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 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 is the upstream chokepoint of the photonics buildout, supplying the indium phosphide substrates every high-speed laser needs amid a massive global shortage. About 600,000-700,000 wafers shipped in 2025 against demand of 1.5-2 million, and AXT holds roughly 36% of a market three firms control. Record revenue rose 164% to $47.6M and gross margin hit 45% from 8.2%; Lumentum prepaid $87M to reserve capacity through 2031. The real risk is China, where slow export permits caused a guidance miss. … Show more
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 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
