AXT's Supply Agreements Expand: Can They Strengthen Revenue Growth?

AXT, Inc. AXTI is expanding its supply agreements with major customers, improving visibility into future InP shipments and potentially supporting revenue growth. The company’s second-quarter 2026 results showed backlog exceeding $100 million, with coverage extending into 2027 through both backlog and long-term supply agreements.

AXT’s agreements with Casela and Coherent further reinforce this pipeline. Casela committed to approximately $25.4 million of InP wafer purchases for 2027, with at least 80% of the committed quantity subject to purchase, while Coherent agreed to a three-year development and supply arrangement for 6-inch InP wafers, backed by a $22.3 million prepayment.

The momentum continued in July, when AXT signed a long-term agreement with Lumentum covering minimum annual InP capacity commitments through December 2031. Lumentum also agreed to an initial $43.5 million deposit, with a second $43.5 million deposit to be determined during 2028, with these deposits applied against future product shipments.

These agreements are particularly meaningful because customer demand already exceeds AXT’s available InP capacity, while the company is expanding production and developing higher-value 6-inch substrates. According to the Zacks Consensus Estimate, AXTI's revenues are projected to reach $217.6 million in 2026. The expansion of supply agreements could further enhance revenue visibility, as it will boost production capacity and convert contracted demand into actual shipments.

How Do the Rivals Tackle this Challenge?

Coherent COHR operates alongside AXT within AI-driven optical connectivity while using its own long-term customer agreements to strengthen revenue visibility. Coherent reports customer orders extending into calendar 2028 and long-term agreements through the decade, supported by capacity expansion and deeper customer partnerships. Unlike AXT’s InP-substrate agreements with upfront prepayments, Coherent uses broader optical-product commitments and strong order coverage to underpin capacity investment and future revenues.

Participating in the broader AI optical-connectivity supply chain, Fabrinet FN approaches revenue visibility differently from AXT. Fabrinet manufactures complex optical and electronic products for hyperscalers and communications customers, supporting growth through established programs, new program wins and capacity expansion. Fabrinet says customer forecasts provide visibility into fiscal 2027 and beyond, although these forecasts are not order commitments, making its visibility less contractually firm than AXT’s supply agreements.

AXTI’s Share Price Performance, Valuation & Estimates

Shares of AXTI have surged 298.6% year to date, significantly outperforming the broader Zacks Computer and Technology sector, which has gained 15.4%.

AXTI’s YTD Price Performance

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AXTI is trading at a premium, with a trailing 12-month price-to-sales (P/S) ratio of 32.96X, much higher than the Zacks Electronics – Semiconductors industry average of 13.13X. The company carries a Value Score of F.

AXTI’s Valuation

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The Zacks Consensus Estimate for AXTI’s 2026 and 2027 earnings is pegged at 86 cents and $2.20 per share, respectively. Both estimates have moved upward over the past 30-day and 60-day periods, reflecting improving earnings expectations. The estimates imply robust year-over-year growth of 309.8% and 155.8%, respectively.

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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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This article originally published on Zacks Investment Research (zacks.com).

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