AXT, Inc. AXTI is entering a growth phase as accelerating demand for indium phosphide (InP) substrates coincides with expanding AI data-center infrastructure and rising optical connectivity requirements.
AXT generated $30.7 million in InP revenues in the second quarter of 2026, a record for the company. Revenues reached a record $47.6 million, while GAAP gross margin improved to 44.9%, reflecting higher volumes and a favorable product mix.
The demand outlook remains favorable. AI data centers are increasingly adopting faster optical connectivity, with the industry moving toward 800G and 1.6T transceivers. Longer term, near-packaged and co-packaged optics could provide another source of InP demand. Management said customer demand continues to exceed supply, with InP backlog above $100 million. AXT is ahead of schedule in doubling InP capacity in 2026 and plans another expansion in 2027.
Customer agreements also improve visibility. Casela committed to purchase approximately $25.4 million of InP substrates during 2027, while Coherent agreed to a three-year development and supply arrangement for 6-inch InP wafers backed by a $22.3 million prepayment. Lumentum separately agreed to reserve InP capacity for six years, with an initial $43.5 million deposit and another $43.5 million deposit contemplated for 2028.
However, China's export-permit requirements for InP remain a key uncertainty and could delay shipments and revenue recognition. Overall, strong AI-driven demand, capacity expansion, supply constraints and multi-year customer commitments support AXT's long-term growth potential. The Zacks Consensus Estimate projects 2026 and 2027 revenue growth of 146.4% and 108.4%, respectively, suggesting InP could become an important growth driver if AXT converts demand into capacity, shipments and sustained profitability.
How Are AXT's Rivals Positioned?
Lumentum LITE represents an important competitor to AXT, with its own InP wafer fabs and laser-chip manufacturing capabilities. Lumentum is expanding CW and EML capacity to support 200G and 300G lane speeds while ramping 800G and 1.6T optical products. Its ultra-high-power laser technology also targets emerging NPO and CPO architectures. At the same time, Lumentum has strengthened its relationship with AXT through a six-year capacity reservation agreement for InP wafer substrates, including an initial $43.5 million deposit. This highlights both companies' complementary positions across the InP optical supply chain.
Semtech SMTC is another downstream player expanding its photonics presence following the HieFo acquisition. HieFo's InP photonic products are strategic building blocks for 1.6T and 3.2T optical modules, while its Gain chips and CW lasers target coherent-light applications. Semtech is also pursuing NPO and CPO opportunities, giving it exposure to the same AI-driven shift toward higher-speed optical connectivity. However, Semtech's positioning is more focused on photonic and electronic components than AXT's underlying InP substrates.
SemiCrystal Limited (SemiCrystal.com)
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