Here's Why AXTI Stock Is a Buy Despite Its Premium 48.12X Valuation

Shares of AXT, Inc. AXTI are currently trading at a premium, as suggested by the Value Score of F. The stock is trading at a premium, with a forward 12-month price-to-earnings (P/E) multiple of 48.12, which is more than three times the Zacks Electronics – Semiconductors industry average of 14.61 and well above the broader Computer and Technology sector average of 21.67.

AXTI Forward 12-Month P/E Ratio

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AXTI’s premium valuation can be better assessed by comparing it with electronics-semiconductor peers. The stock currently trades at a higher P/E multiple than Broadcom AVGO, FormFactor FORM and Synaptics SYNA. Currently, Broadcom, FormFactor and Synaptics trade at P/E multiples of 22.4, 38.57 and 19.71, respectively.

The strong performance of AXTI’s share price has also contributed to its elevated valuation. Year to date, the stock has surged 399.4%, significantly outpacing the sector's 19% growth. AXTI has also outperformed Broadcom, FormFactor and Synaptics, whose share prices have risen 13.6%, 136% and 46.8%, respectively. However, the key question for investors is whether AXTI’s earnings growth can keep pace with its elevated valuation.

AXTI YTD Price Return Performance

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While the premium multiple may raise concerns, the answer could depend on AXTI’s ability to capitalize on the expanding AI infrastructure opportunity. Below are key reasons why the company’s growth prospects could justify its premium valuation and make the stock an attractive investment option despite its elevated P/E multiple.

AI Data-Center Demand Fuels InP Growth for AXTI

AXTI is well positioned to benefit from the accelerating deployment of optical connectivity in AI data centers. The company's Indium Phosphide (InP) substrates are used for high-speed optical data transmission. It anticipates strong demand in the near future driven by the industry's shift toward 800G and 1.6T transceiver modules, as InP-based lasers and detectors are critical for high-performance optical links. In the long term, the shift toward 'near-packaged' and 'co-packaged' optics could further boost demand for InP, signaling a sustained, multi-year demand cycle.

This opportunity is particularly attractive for AXTI because current demand for InP far exceeds supply. Simultaneously, the company is expanding its production capacity and manufacturing higher-quality substrates. Management expects the InP revenue opportunity to more than triple by the end of 2026, with additional expansion expected in 2027, supported by capacity additions, improved manufacturing productivity and customer migration toward larger-diameter, higher-value products.

From an investment perspective, AXTI’s involvement in AI data-center optical connectivity serves as a compelling growth catalyst, as the opportunity extends beyond a single product cycle. The company is witnessing demand from multiple US hyperscalers and significant growth within China’s AI supply chain, while its vertically integrated raw material strategy is designed to meet the rising demand for InP.

Customer Agreements Enhance AXTI’s Demand Visibility

AXTI is strengthening its revenue visibility through long-term supply agreements with key customers, providing greater clarity into future InP demand and supporting the company’s capacity expansion plans. During the second quarter, AXT signed strategic agreements with Casela, Coherent and Lumentum, deepening relationships with customers involved in the next generation of data-center connectivity. These agreements increase its conviction that the planned capacity build-out is necessary, while the growing backlog and long-term supply agreements provide coverage into 2027 and beyond.

The agreements also provide tangible evidence of customer commitment to AXT’s InP capacity. Under the Casela agreement, the customer committed to purchase a fixed quantity of InP wafers during 2027, with supply priority and a minimum purchase requirement. The Coherent agreement covers the development and supply of 6-inch InP wafers for an initial three-year term and includes a capacity commitment, while the Lumentum agreement reserves minimum annual InP capacity for six years and includes customer deposits that will be applied against future shipments. These commitments can support more predictable demand and help AXT align capacity investments with customer requirements.

AXTI’s Strong Financial Performance Boosts Growth

AXTI delivered record financial performance in the second quarter of 2026, demonstrating significant operating leverage as strong demand for its InP substrates drove higher production volumes. Revenues surged 164% year over year to $47.6 million, the highest quarterly level in the company’s history, while InP revenues reached a record $30.7 million, primarily driven by data-center applications.

The improvement flowed through to the bottom line, highlighting the potential for further earnings growth as AXT scales its business. Operating profit and net income turned positive in the reported quarter, while operating expenses increased at a much slower pace than revenues, highlighting meaningful operating leverage. Strong customer demand, rising volumes and manufacturing efficiencies could drive further margin expansion and earnings growth, providing fundamental support for AXTI’s premium valuation.

AXTI’s Earnings Estimate Revision Shows Upward Momentum

The Zacks Consensus Estimate for AXTI’s 2026 earnings is pegged at 86 cents per share and has moved upward over the past 30-day and 60-day periods. The upward revisions reflect improving earnings expectations and indicate growing analyst confidence in the company’s earnings outlook. The estimate implies a robust year-over-year increase of 309.76%.

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Conclusion

AXTI’s strong InP demand, expanding AI data-center opportunity, customer agreements, improving financial performance and upward earnings revisions provide compelling growth drivers. Despite its premium valuation, these catalysts could support sustained earnings growth and justify the elevated multiple. Therefore, investors seeking growth exposure should consider buying AXTI stock now.

AXT stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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