AXT, Inc. (AXTI) | The Buildout — AI Infrastructure
The Verdict
AXT makes indium phosphide, gallium arsenide, and germanium substrates. Its InP wafers feed the lasers and photodetectors used in optical transceivers that connect GPUs inside AI data centers. The company is vertically integrated: it designs its own crystal-growth furnaces and owns raw-material subsidiaries. Manufacturing is concentrated in China, and export permits gate many shipments outside China.
| Market Cap | — |
| Revenue (TTM) | $126M |
| Revenue Growth | +45.8% |
| EBITDA Margin (TTM) | 8.7% |
| Net Cash | $332M |
| Earnings Beats | 3 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- InP revenue reached $30.7M in Q2 2026, about 64.5% of total revenue, up from $13.6M in Q1.
- Non-GAAP gross margin reached 45.0% in Q2 2026, up from 8.2% a year earlier.
- InP backlog is 'well over $100 million' and management says it is still growing.
- Cash and investments rose to $749 million after the $632.5 million April raise.
- Management targets InP run-rates of about $60M per quarter exiting 2026 and $130M per quarter exiting 2027.
What We’re Watching
- Q3 actual results against the $66M revenue floor will show whether permit flow is improving.
- Inventory reached $96.3M in Q2; management calls it deliberate staging, but conversion remains unproven.
- The LTSA counterparty names remain partially garbled in the transcript ('Casella' or 'Kasela'); contract size and timing remain unresolved.
- Capacity execution: end-2026 and end-2027 run-rates, plus 6-inch qualification, are moving targets.
The thesis is strengthening: record revenue, a return to profitability, signed prepaid supply agreements, and a funded expansion plan all point the same direction. The key open question is whether export permits and execution can convert the deliberate inventory build and capacity ramp into revenue without a mismatch.
Earnings
AXT reported Q2 2026 revenue of $47.6 million, up nearly 77% QoQ and 164% YoY. Non-GAAP gross margin was 45.0%, compared with 8.2% a year earlier. Q2 2026 indium phosphide revenue nearly doubled the prior InP record of about $17 million.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $48M | $27M | $18M | +164.4% |
| Gross margin | 44.9% | 29.6% | 8.0% | +3690bps |
| EBITDA | $10M | $1M | −$4M | −331.1% |
| EPS | $0.19 | $-0.03 | $-0.16 | −216.3% |
| Indium Phosphide revenue | $30.7M | $13.6M | n/a | — |
Revenue for the second quarter of 2026 is $47.6 million. This is the highest quarterly revenue in AXT history. Up nearly 77% from $26.9 million in the first quarter. And up a 164% from $18 million the second quarter of 2025.— Gary L. Fischer, Chief Financial Officer, July 30, 2026
Management tone: Management described Q2 as an inflection point and the beginning of a multiyear growth phase, while remaining specific that export-permit timing is unpredictable. The CFO disclosed a gross-margin internal target beginning with a 5 and asked an analyst not to publicize it.
Management Guidance
Q3 2026 guidance is a revenue floor of approximately $66 million, non-GAAP net income per share of $0.30–$0.32, GAAP net income per share of $0.29–$0.31, non-GAAP OpEx of approximately $10.5 million, GAAP OpEx of approximately $11 million, and an estimated share count of approximately 66.5 million shares. The floor covers revenue realizable with permits already in hand or not required; additional permits could provide significant upside.
Trajectory
Revenue is accelerating: Q2 2026 revenue of $47.6 million grew 77% QoQ, versus 17% QoQ in Q1. The driver is indium phosphide, up to $30.7 million from $13.6 million, on data center demand and additional export approvals. Non-GAAP gross margin widened to 45.0% from 29.9% in Q1 as volume absorbed fixed costs and mix shifted toward larger diameters. Inventory rose deliberately to $96.3 million ahead of permit-driven shipments.
The Model
The model projects FY+1 revenue of $150 million and EBITDA of $19 million, a 12.7% margin. FY+2 revenue is projected at $245 million with EBITDA of $58 million, a 23.6% margin. The near-term anchor is the InP capacity ramp and the Q3 revenue floor; FY+2 is driven by the planned exit run-rate expansion and long-term supply-agreement conversion.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $88M | $150M | $245M |
| YoY Growth | — | +69.7% | +63.3% |
| EBITDA | −$13M | $19M | $58M |
| EBITDA Margin | -14.6% | 12.7% | 23.6% |
Projections are the median of 5 independent model runs. The model’s revenue sits 10.2% above analyst consensus.
Q3 2026 guidance is a revenue floor of approximately $66 million, non-GAAP net income per share of $0.30–$0.32, GAAP net income per share of $0.29–$0.31, non-GAAP OpEx of approximately $10.5 million, GAAP OpEx of approximately $11 million, and an estimated share count of approximately 66.5 million shares. The floor covers revenue realizable with permits already in hand or not required; additional permits could provide significant upside.
What Could Go Right — and Wrong
- Export permits, including possible U.S. permits, become more regular and unlock international revenue.
- InP capacity reaches management's targets of about $60 million per quarter exiting 2026 and about $130 million per quarter exiting 2027.
- Coherent, Casella/Kasela, and Lumentum LTSAs convert prepayments to revenue through Q4 and into 2027.
- 6-inch InP substrates in development for next-generation optical roadmaps.
- Non-GAAP gross margin sustains near 45% or expands toward management's internal target starting with a 5.
- Export permit flow stalls, leaving inventory stranded and pushing revenue into later periods.
- AI data center optical spending pauses or the 100G/1.6T transceiver upgrade cycle corrects.
- Customer and competitor InP capacity additions reduce merchant demand or pricing power.
- The 2027 facility build or 6-inch qualification slips, delaying the capacity ramp.
- Historical ASP declines of about 5% to 10% per year reassert once supply catches demand.
Looking Ahead
The next 12 months are framed by management's Q3 revenue floor of about $66 million, followed by an end-2026 InP run-rate target of about $60 million per quarter. LTSA revenue conversion is expected to build through Q4 and into 2027, and 6-inch InP substrates are in development for next-generation optical roadmaps. The 2027 facility is intended to roughly double capacity again to about $130 million per quarter exiting 2027.
- Q3 2026Q3 revenue and profitability — Tests the $66M floor and whether additional export permits create upside.
- Q4 2026LTSA revenue conversion ramps — Tests whether Coherent and Casella/Kasela prepayments begin converting to revenue.
- Exiting 2026End-2026 InP run-rate — Tests management's target of about $60M per quarter InP capacity.
- 2027Casella/Kasela contract starts — Tests the 2027 start of the agreement with the undisclosed counterparty.
- Exiting 20272027 InP facility run-rate — Tests the target of about $130M per quarter exiting 2027.
- Late 2027+Co-packaged optics inflection — Tests whether CPO demand begins to add a second InP demand wave.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $99M | $88M | $126M | -11.0% |
| Gross Margin | 24.0% | 11.2% | 32.2% | 1,278bps |
| EBITDA | −$6M | −$13M | $76M | -122.4% |
| EBITDA Margin | -5.8% | -14.6% | 8.7% | 875bps |
| Net Income | −$12M | −$21M | $4M | -82.8% |
| Free Cash Flow | −$18M | −$19M | −$192M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)32.2%
- EBITDA Margin (TTM)8.7%
- Net Margin (TTM)3.3%
- ROIC0.6%
- FCF Conversion-211.9%
- SBC / Revenue1.8%
The Company
AXT, Inc. develops and produces high-performance compound and single-element semiconductor substrates — indium phosphide, gallium arsenide, and germanium — plus raw materials through consolidated subsidiaries. Indium phosphide is the core AI-infrastructure product: AXT InP wafers feed laser diodes and photodetectors used in optical transceivers that connect GPUs in AI data centers. The 10-Q attributed Q1 substrate growth to higher InP wafer demand from data center applications and passive optical networks after additional China export approvals.
AXT operates one segment and is vertically integrated. It designs and builds its own crystal-growth furnaces and controls some raw-material inputs through JinMei/Jingmei high-purity indium refining and BoYu pBN crucibles. Its manufacturing footprint is almost entirely in China: six sites in Beijing, DingXing, Kazuo, and Tianjin, with Q1 2026 long-lived assets of $165.5M in China out of $166.5M total. It depends on single or limited suppliers for quartz tubing, arsenic, phosphorus, and polishing solutions.
Business Segments
Competitive Landscape
The 10-K lists primary competitors as Sumitomo Electric Industries, Japan Energy (JX), Freiberger Compound Materials, Umicore, China Crystal Technology Corp. (CCTC), and Vital Materials. Management says the competitive landscape for high-quality InP is limited to a few players because of high technical barriers, and believes AXT is in the strongest position to add capacity quickly. The 10-K also cautions that competitors have adopted similar crystal-growth technology, eroding AXT's differentiation, and that certain products have seen annual ASP declines of about 5–10%.
- Sumitomo Electric IndustriesListed in 10-K as primary competitor; no further discussion supplied.
- Japan Energy (JX)Listed in 10-K as primary competitor; no further discussion supplied.
- Freiberger Compound MaterialsListed in 10-K as primary competitor; no further discussion supplied.
- UmicoreListed in 10-K as primary competitor; no further discussion supplied.
- China Crystal Technology Corp. (CCTC)Listed in 10-K as primary competitor; no further discussion supplied.
Supply Chain
AXT sits upstream in the AI optical chain, supplying InP, GaAs, and Ge substrates while vertically integrated into high-purity indium and pBN crucibles. It also relies on single or limited external suppliers for quartz tubing, arsenic, phosphorus, and polishing solutions.
More on AXTI: Earnings recap