AXT Inc. AXTI has emerged as a critical supplier for the AI infrastructure boom, with surging demand for its indium phosphide substrates pushing the company’s backlog to record highs and its stock price up a staggering 657.1% year-to-date.
Management described the indium phosphide backlog, which surpassed $100 million in the first quarter, as a record high that provides meaningful visibility into future growth and positions AXT at the center of the optical connectivity boom powering next-generation AI data centers.
The primary driver is the rapid expansion of AI data centers, which require high-speed optical components made from AXT's materials. Indium phosphide revenues totaled $13.6 million in the first quarter of 2026, up from $8 million in the fourth quarter of 2025. The company is aggressively expanding to meet demand, with plans to double its indium phosphide capacity in 2026 and quadruple it by 2027.
While AXT's remarkable rally is grounded in the powerful AI infrastructure trend, its valuation now sits far above industry peers, trading at a forward price-to-sales ratio of 48.74. The biggest near-term hurdle remains Chinese export permits, which management described as the single largest gating factor for growth.
Competition Heats Up
The explosive growth in AI-driven demand for optical components has not gone unnoticed, with key competitors ramping up capacity to address industry shortages. Coherent Corp. (COHR) is aggressively expanding its 6-inch indium phosphide output, expecting to double it by the end of 2026 and more than double it again in 2027. The company’s datacenter and communications revenues grew more than 40% year-over-year in its most recent quarter, fueled by AI demand.
Lumentum Holdings (LITE) is also seeing a rapid acceleration, with its Components revenues jumping 77% year over year to a record $533.3 million in its third-quarter fiscal 2026. Lumentum is expanding its own manufacturing capacity through a newly acquired indium phosphide fab in North Carolina and recently placed multiple orders for G10-AsP MOCVD systems from Aixtron (AIXGn) to scale production. Both Coherent and Lumentum have also been bolstered by strategic partnerships with NVIDIA (NVDA).
Valuation and Risks
AXT's valuation remains a significant point of debate. The stock's forward 12-month price-to-sales ratio of 48.74 is substantially higher than its five-year median of 1.48 and the industry average of 9.33. Competitors like Coherent and Amkor Technology (AMKR) trade at more modest multiples of 14.63x and 22.16x, respectively.
This premium valuation reflects investor confidence in AXT's growth trajectory but leaves little room for error. The most significant risk, repeatedly highlighted by management, is the uncertainty surrounding export permits from China, which could constrain AXT's ability to meet its surging backlog despite its capacity expansion plans. The company must also successfully execute its manufacturing scale-up during an unprecedented demand cycle.
This article is for informational purposes only and does not constitute investment advice.
