Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported July 30, 2026 · Beat 3 of last 7 quarters
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AXT's record quarter and raised capacity targets underscore the accelerating demand for indium phosphide substrates in AI data center optical connectivity. The company's ability to more than triple InP revenue in 2026 and double again in 2027 signals a durable multiyear buildout of optical infrastructure, with AXT positioning itself as the largest InP producer globally.
AXT reported record revenue of $47.6 million, with indium phosphide revenue of $30.7 million, both all-time highs. Non-GAAP gross margin jumped to 45.0% from 29.9% in Q1, and the company returned to profitability with non-GAAP EPS of $0.19. Cash increased to $749 million following a $632 million secondary offering. The company signed long-term supply agreements with Casella, Coherent, and Lumentum, receiving prepayments of $22.3 million and $25.4 million from the first two. Management also announced that Tongmei's IPO application was moved from the STAR Market to the Hong Kong Exchange.
Management described a multiyear growth phase driven by AI data center demand for indium phosphide. They raised their 2026 InP revenue target to more than triple by year-end, and now expect to more than double capacity again in 2027, exiting at roughly $130 million per quarter. They guided Q3 revenue of at least $66 million with potential upside from export permits, and non-GAAP EPS of $0.30-$0.32. Gross margins are expected to remain above 40% with potential for further improvement as volume, mix, and larger-diameter substrates improve. The company signed long-term supply agreements with Casella, Coherent, and Lumentum, and is planning a new adjacent facility for 2027 expansion.
“This is a incredibly exciting time for you at AXT. As Gary mentioned, we have reached an inflection point in our business where the customer demand is extremely strong for our indium phosphide material.”
on Inflection point
“Customer demand continues to outpace supply no matter how fast we add capacity.”
on Demand vs. supply
“The demand is moving faster than we can move. We are doing great to move fast.”
on Capacity expansion
Is the new target for indium phosphide capacity exiting the year around $60 million in quarterly revenue?
Tim Bettles confirmed that is about right, and that they plan to more than double again in 2027, exiting around $130 million per quarter. Morris Young added that the target is a moving target and could be even better depending on demand.
How has the export permit process changed, and how do you have more confidence in getting permits?
Tim Bettles said permits remain a concern but they are seeing more regularity in certain geographic regions and are driving more permit applications through the Ministry of Commerce. Gary Fischer noted they have $66 million in revenue they are confident in for Q3.
Can gross margins get to a number that starts with a 5?
Gary Fischer said they should definitely be targeting a number that begins with a 5, driven by volume, productivity, and mix shift to larger diameters. Morris Young added that all growth is in indium phosphide, which has better margins, so gross margins could be better.