AXT's InP Demand Is Surging: Can It Become a Long-Term Growth Driver?

AXT, Inc. AXTI is seeing surging indium phosphide (InP) demand emerge as a potential long-term growth driver; this trend is being supported by the expansion of AI data-centers, increased production capacity and a rise in long-term customer commitments.

The company recorded $30.7 million in InP revenues in the second quarter of 2026, its highest quarterly level ever, primarily driven by data-center applications. Management expects its InP revenue opportunity to more than triple by the end of 2026, with further significant expansion anticipated in 2027.

The demand outlook is supported by the industry's migration toward 800G and 1.6T optical transceivers, where InP-based lasers and detectors are essential. Longer term, the transition toward near-packaged and co-packaged optics could sustain demand for InP substrates, creating a multiyear demand cycle.

AXT is doubling InP capacity in 2026, plans another major expansion in 2027 and is improving output through new crystal-growing furnace designs. Importantly, demand continues to outpace supply, with backlog above $100 million and coverage extending into 2027 and beyond. Long-term agreements with Casela, Coherent and Lumentum, including substantial customer prepayments, further strengthen future InP revenue visibility.

With AI-driven optical demand, capacity expansion, supply-constrained conditions and multi-year customer commitments, InP has the potential to become a durable long-term growth driver for AXT.

How Do Competitors Fare?

Lumentum LITE competes with AXTI through its own InP wafer fabs and laser-chip manufacturing. LITE produces EML and CW laser chips for 800G/1.6T networking and is ramping ultra-high-power lasers for CPO, while AXTI supplies InP substrates. Lumentum also signed a long-term supply agreement with AXTI, making the company both a major customer and a vertically integrated competitor.

Semtech SMTC is an indirect competitor to AXTI through its expanding InP photonics portfolio following the HieFo acquisition. SMTC supplies InP gain chips and CW lasers, along with laser drivers and TIAs, for next-generation optical modules. As AI data centers drive increasing demand for 1.6T and 3.2T connectivity, SMTC and AXT are increasingly participating in the same photonics supply chain, though at different stages.

AXTI’s Share Price Performance, Valuation & Estimates

Shares of AXTI have surged 397% year to date, significantly outperforming the broader Zacks Computer and Technology sector, which has gained 16.4%.

AXTI’s YTD Price Performance

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AXTI is trading at a premium, with a forward 12-month price-to-sales (P/S) ratio of 14.67X, which is higher than the Zacks Electronics – Semiconductors industry average of 5.12X. The company carries a Value Score of F.

AXTI’s Valuation

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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 estimate implies a robust year-over-year increase of 309.76%.

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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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