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AXT Eyes Co-Packaged Optics: Can It Become the Next Growth Driver?
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Key Takeaways
AXT sees co-packaged optics emerging as a meaningful revenue opportunity from late 2027 onward.
Record InP backlog, Tier-1 customer engagement and 6-inch wafer progress to support future CPO demand.
A $22.3 million Coherent prepayment under a multi-year supply deal improves demand visibility.
AXT, Inc. (AXTI - Free Report) is positioning itself to benefit from the next evolution of AI networking through its growing exposure to co-packaged optics (CPO), a technology that could become the company's next revenue pillar as AI data center connectivity evolves. Management expects CPO adoption to accelerate as hyperscalers build increasingly complex AI clusters, with commercial opportunities likely emerging from late 2027 onward.
To prepare for this transition, AXT is aggressively expanding its indium phosphide (InP) production capacity through 2028 while advancing its 6-inch InP wafer technology, which is designed to support next-generation silicon photonics, electro-absorption-modulated lasers and other high-speed optical devices essential for CPO architectures. Its record InP backlog, growing engagement with Tier-1 optical customers and direct collaboration on future product roadmaps underscore rising customer demand and strengthen confidence in future revenue opportunities.
AXT's vertically integrated manufacturing model, including proprietary crystal-growth technology and internal raw-material refining, further enhances its ability to scale production as optical networking requirements evolve. Supporting this strategy, the recently announced multi-year supply agreement with Coherent, backed by a $22.3 million customer prepayment, provides better visibility into future demand for its advanced optical substrates.
Although CPO remains an emerging technology and is unlikely to contribute meaningfully to revenues in the near term, the rapid expansion of AI infrastructure and data center connectivity is steadily strengthening AXT's long-term investment case. If CPO adoption unfolds as management anticipates, it could become the company's next major growth driver, supporting future revenue expansion. The Zacks Consensus Estimate projects 2027 revenues of $211.85 million, representing 49.8% year-over-year growth, reinforcing investors' confidence in AXT's long-term growth trajectory.
AXTI Faces Tough Competition
AXTI faces tough competition in the CPO race as established optical networking leaders are investing aggressively in photonic integration, laser capacity and hyperscaler partnerships, making the emerging co-packaged optics market highly competitive.
Coherent (COHR - Free Report) holds a stronger CPO position than AXTI through its broad photonics portfolio, 6-inch indium phosphide expansion, NVIDIA partnership, multiyear supply agreements and manufacturing scale. COHR expects CPO revenues from late 2026, targets both scale-out and scale-up deployments and views CPO as a $15-billion-plus opportunity. Coherent also offers higher-value assemblies beyond substrates, creating a wider competitive moat.
Lumentum Holdings (LITE - Free Report) is better positioned than AXTI by combining ultra-high-power lasers, ELS modules, transceivers and expanding indium phosphide capacity. LITE is advancing multiple CPO customer collaborations, and expects meaningful CPO revenues and multi-hundred-million-dollar orders while leveraging vertical integration and hyperscaler demand. Lumentum therefore enjoys broader CPO market exposure than AXTI's substrate-focused strategy.
Shares of AXTI have soared 245.6% in the year-to-date period, outperforming the Zacks Electronics – Semiconductors industry and the Zacks Computer and Technology sector’s growth of 27.5% and 12.1%, respectively.
AXTI’s YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, AXTI appears overvalued, trading at a trailing 12-month price/sales (P/S) ratio of 31.42, significantly higher than the industry average of 14.38. The company carries a Value Score of F.
AXTI’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for AXTI's 2026 EPS is pegged at 27 cents per share. Although the estimate has been trimmed by 1 cent in the past 30 days, it represents a notable turnaround from last year's loss of 41 cents per share.
View the Zacks #1 Rank List
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AXT Eyes Co-Packaged Optics: Can It Become the Next Growth Driver?
Key Takeaways
AXT, Inc. (AXTI - Free Report) is positioning itself to benefit from the next evolution of AI networking through its growing exposure to co-packaged optics (CPO), a technology that could become the company's next revenue pillar as AI data center connectivity evolves. Management expects CPO adoption to accelerate as hyperscalers build increasingly complex AI clusters, with commercial opportunities likely emerging from late 2027 onward.
To prepare for this transition, AXT is aggressively expanding its indium phosphide (InP) production capacity through 2028 while advancing its 6-inch InP wafer technology, which is designed to support next-generation silicon photonics, electro-absorption-modulated lasers and other high-speed optical devices essential for CPO architectures. Its record InP backlog, growing engagement with Tier-1 optical customers and direct collaboration on future product roadmaps underscore rising customer demand and strengthen confidence in future revenue opportunities.
AXT's vertically integrated manufacturing model, including proprietary crystal-growth technology and internal raw-material refining, further enhances its ability to scale production as optical networking requirements evolve. Supporting this strategy, the recently announced multi-year supply agreement with Coherent, backed by a $22.3 million customer prepayment, provides better visibility into future demand for its advanced optical substrates.
Although CPO remains an emerging technology and is unlikely to contribute meaningfully to revenues in the near term, the rapid expansion of AI infrastructure and data center connectivity is steadily strengthening AXT's long-term investment case. If CPO adoption unfolds as management anticipates, it could become the company's next major growth driver, supporting future revenue expansion. The Zacks Consensus Estimate projects 2027 revenues of $211.85 million, representing 49.8% year-over-year growth, reinforcing investors' confidence in AXT's long-term growth trajectory.
AXTI Faces Tough Competition
AXTI faces tough competition in the CPO race as established optical networking leaders are investing aggressively in photonic integration, laser capacity and hyperscaler partnerships, making the emerging co-packaged optics market highly competitive.
Coherent (COHR - Free Report) holds a stronger CPO position than AXTI through its broad photonics portfolio, 6-inch indium phosphide expansion, NVIDIA partnership, multiyear supply agreements and manufacturing scale. COHR expects CPO revenues from late 2026, targets both scale-out and scale-up deployments and views CPO as a $15-billion-plus opportunity. Coherent also offers higher-value assemblies beyond substrates, creating a wider competitive moat.
Lumentum Holdings (LITE - Free Report) is better positioned than AXTI by combining ultra-high-power lasers, ELS modules, transceivers and expanding indium phosphide capacity. LITE is advancing multiple CPO customer collaborations, and expects meaningful CPO revenues and multi-hundred-million-dollar orders while leveraging vertical integration and hyperscaler demand. Lumentum therefore enjoys broader CPO market exposure than AXTI's substrate-focused strategy.
AXTI’s Share Price Performance, Valuation & Estimates
Shares of AXTI have soared 245.6% in the year-to-date period, outperforming the Zacks Electronics – Semiconductors industry and the Zacks Computer and Technology sector’s growth of 27.5% and 12.1%, respectively.
AXTI’s YTD Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, AXTI appears overvalued, trading at a trailing 12-month price/sales (P/S) ratio of 31.42, significantly higher than the industry average of 14.38. The company carries a Value Score of F.
AXTI’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for AXTI's 2026 EPS is pegged at 27 cents per share. Although the estimate has been trimmed by 1 cent in the past 30 days, it represents a notable turnaround from last year's loss of 41 cents per share.
Image Source: Zacks Investment Research
AXT stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.