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AXTI Q3 Earnings Beat on Record InP Sales and Margin Gains
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Key Takeaways
AXT's Q3 non-GAAP EPS hit 41 cents versus 31 cents expected, as revenues jumped 162% to $73.4 million.
Record InP sales hit $54.3M on AI data-center demand, while non-GAAP gross margin widened to 56.1%.
AXT's backlog topped $500M; Q4 non-GAAP EPS is projected at 57-59 cents, while gross margin could top 60%.
AXT, Inc. (AXTI - Free Report) reported non-GAAP earnings of 41 cents per share in the third quarter of 2026, surpassing the Zacks Consensus Estimate of 31 cents by 32.26%. The company had recorded a non-GAAP loss of 3 cents per share in the year-ago quarter.
Revenues rose 162% year over year and 54% sequentially to $73.4 million, topping the consensus estimate by 11.05%. Strong indium phosphide (InP) sales to AI data-center customers and higher manufacturing productivity supported the beat. Backlog surpassed $500 million.
AXTI's InP Revenues Hit a New High in Q3
InP revenues reached $54.3 million, the highest level in AXT's history. Data-center demand accounted for the bulk of InP sales as customers deployed high-speed optical components.
The shift to 800G and 1.6T transceiver modules is fueling demand for InP-based lasers and photodetectors that move data across dense AI computing systems. Management also expects growing demand for continuous-wave lasers used in next-generation optical interconnects.
Gallium arsenide (GaAs) revenues totaled $9.1 million in the third quarter. Demand for semi-insulating and semiconducting wafers increased sequentially, supported by wireless devices, industrial robotics and data-center laser applications.
Germanium substrate revenues reached $344,000, while consolidated raw-material businesses contributed $9.7 million. The company's five largest customers represented about 35% of total revenues, with one customer accounting for more than 10%. Management expects some GaAs markets to soften seasonally in the fourth quarter.
AXTI's Margins Widen on Volume, Mix and Pricing
Non-GAAP gross margin rose to 56.1% from 45% in the prior quarter and 22.4% a year earlier. Increased volumes, a richer InP product mix, improved factory efficiency and higher selling prices for InP wafers contributed to the expansion.
Non-GAAP operating expenses increased to $11.7 million from $10.2 million sequentially and $6.7 million a year earlier. Even with higher spending, non-GAAP operating income jumped to $29.5 million from $11.2 million in the previous quarter, against a $0.4 million operating loss a year ago.
AXT Pushes Ahead With Capacity Expansion
AXT exceeded its initial 2026 target to double InP capacity by August. Management now anticipates exiting 2026 with about 2.75 to three times its year-end 2025 capacity, followed by another doubling in 2027. The company is also planning to convert an adjacent building into manufacturing space.
New proprietary crystal-growth furnaces are helping increase wafer output. Six-inch InP lines are entering pilot production, while customers are transitioning from three-inch to higher-value four-inch wafers. AXT expects the shift in laser substrates to accelerate in 2027, creating further pricing and margin opportunities.
AXTI's Backlog Surges Amid Tight Wafer Supply
Management said demand still exceeds InP supply, with all customers on allocation. The order book spans multiyear agreements, shorter contracts and spot purchase orders extending into 2027. Orders from Chinese customers have also increased, with domestic shipments avoiding export-permit requirements.
During the quarter, AXT signed a supply agreement with Lumentum and received a $43.5 million wafer prepayment. The advance remains a liability until related wafers ship. Management said many orders carry lead times exceeding nine months and it is limiting new long-term commitments to preserve pricing flexibility.
AXT Strengthens Liquidity and Funding Options
Cash, cash equivalents and investments were $825.9 million as of Sept. 30, 2026, up from $748.8 million at June 30. Days sales outstanding improved to 49 following customer prepayments, while net inventory increased approximately $7.4 million sequentially.
The majority-owned Tongmei subsidiary agreed to a private equity financing of up to $545 million to fund wafer and raw-material capacity expansion in China. If fully subscribed, AXT would retain approximately 73.4% ownership. Tongmei is also pursuing a Hong Kong stock market listing.
AXTI Sees Higher Q4 Earnings and Margins
AXT has approximately $90 million in revenues for the fourth quarter of 2026, supported by existing export permits or shipments requiring no permit. AXT expressed high confidence in realizing that amount, while InP is expected to account for most of the sequential sales increase.
Non-GAAP earnings are projected at 57-59 cents per share, with GAAP earnings expected at 56-58 cents. Non-GAAP operating expenses are pegged at roughly $13 million versus $14 million on a GAAP basis. The share-count assumption is 66.1 million. Gross margin could exceed 60%.
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AXTI Q3 Earnings Beat on Record InP Sales and Margin Gains
Key Takeaways
AXT, Inc. (AXTI - Free Report) reported non-GAAP earnings of 41 cents per share in the third quarter of 2026, surpassing the Zacks Consensus Estimate of 31 cents by 32.26%. The company had recorded a non-GAAP loss of 3 cents per share in the year-ago quarter.
Revenues rose 162% year over year and 54% sequentially to $73.4 million, topping the consensus estimate by 11.05%. Strong indium phosphide (InP) sales to AI data-center customers and higher manufacturing productivity supported the beat. Backlog surpassed $500 million.
AXTI's InP Revenues Hit a New High in Q3
InP revenues reached $54.3 million, the highest level in AXT's history. Data-center demand accounted for the bulk of InP sales as customers deployed high-speed optical components.
The shift to 800G and 1.6T transceiver modules is fueling demand for InP-based lasers and photodetectors that move data across dense AI computing systems. Management also expects growing demand for continuous-wave lasers used in next-generation optical interconnects.
AXT Inc Price, Consensus and EPS Surprise
AXT Inc price-consensus-eps-surprise-chart | AXT Inc Quote
AXT's GaAs Sales Rise, Raw Materials Remain Key
Gallium arsenide (GaAs) revenues totaled $9.1 million in the third quarter. Demand for semi-insulating and semiconducting wafers increased sequentially, supported by wireless devices, industrial robotics and data-center laser applications.
Germanium substrate revenues reached $344,000, while consolidated raw-material businesses contributed $9.7 million. The company's five largest customers represented about 35% of total revenues, with one customer accounting for more than 10%. Management expects some GaAs markets to soften seasonally in the fourth quarter.
AXTI's Margins Widen on Volume, Mix and Pricing
Non-GAAP gross margin rose to 56.1% from 45% in the prior quarter and 22.4% a year earlier. Increased volumes, a richer InP product mix, improved factory efficiency and higher selling prices for InP wafers contributed to the expansion.
Non-GAAP operating expenses increased to $11.7 million from $10.2 million sequentially and $6.7 million a year earlier. Even with higher spending, non-GAAP operating income jumped to $29.5 million from $11.2 million in the previous quarter, against a $0.4 million operating loss a year ago.
AXT Pushes Ahead With Capacity Expansion
AXT exceeded its initial 2026 target to double InP capacity by August. Management now anticipates exiting 2026 with about 2.75 to three times its year-end 2025 capacity, followed by another doubling in 2027. The company is also planning to convert an adjacent building into manufacturing space.
New proprietary crystal-growth furnaces are helping increase wafer output. Six-inch InP lines are entering pilot production, while customers are transitioning from three-inch to higher-value four-inch wafers. AXT expects the shift in laser substrates to accelerate in 2027, creating further pricing and margin opportunities.
AXTI's Backlog Surges Amid Tight Wafer Supply
Management said demand still exceeds InP supply, with all customers on allocation. The order book spans multiyear agreements, shorter contracts and spot purchase orders extending into 2027. Orders from Chinese customers have also increased, with domestic shipments avoiding export-permit requirements.
During the quarter, AXT signed a supply agreement with Lumentum and received a $43.5 million wafer prepayment. The advance remains a liability until related wafers ship. Management said many orders carry lead times exceeding nine months and it is limiting new long-term commitments to preserve pricing flexibility.
AXT Strengthens Liquidity and Funding Options
Cash, cash equivalents and investments were $825.9 million as of Sept. 30, 2026, up from $748.8 million at June 30. Days sales outstanding improved to 49 following customer prepayments, while net inventory increased approximately $7.4 million sequentially.
The majority-owned Tongmei subsidiary agreed to a private equity financing of up to $545 million to fund wafer and raw-material capacity expansion in China. If fully subscribed, AXT would retain approximately 73.4% ownership. Tongmei is also pursuing a Hong Kong stock market listing.
AXTI Sees Higher Q4 Earnings and Margins
AXT has approximately $90 million in revenues for the fourth quarter of 2026, supported by existing export permits or shipments requiring no permit. AXT expressed high confidence in realizing that amount, while InP is expected to account for most of the sequential sales increase.
Non-GAAP earnings are projected at 57-59 cents per share, with GAAP earnings expected at 56-58 cents. Non-GAAP operating expenses are pegged at roughly $13 million versus $14 million on a GAAP basis. The share-count assumption is 66.1 million. Gross margin could exceed 60%.
AXTI’s Zacks Rank & Stocks to Consider
AXT currently carries a Zacks Rank #3 (Hold).
Camtek (CAMT - Free Report) , Fastly (FSLY - Free Report) and Microchip (MCHP - Free Report) are among the better-ranked stocks that investors can consider in the broader Zacks Computer and Technology sector. Currently, Camtek sports a Zacks Rank #1 (Strong Buy), while Enovix Corporation and Microchip carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
Camtek’s shares have returned 19.1% year to date. CAMT is scheduled to report its third-quarter 2026 results on Nov. 4.
Fastly’s shares have surged 151.8% year to date. FSLY is slated to report its third-quarter 2026 results on Nov. 4.
Microchip’s shares have gained 27.4% year to date. MCHP is scheduled to report its fiscal second-quarter 2027 results on Nov. 5, 2026.