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AXTI's AI Data Center Boom: Can Substrate Demand Sustain Growth?
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Key Takeaways
AXTI's Q3 2026 revenues hit a record $73.4 million, up 162% year over year amid strong InP demand.
AXTI's InP revenues reached $54.3 million; volumes, mix and prices lifted non-GAAP gross margin to 56.1%.
AXTI's backlog topped $500 million, with customers on allocation; InP capacity beat its 2026 doubling goal.
AXT, Inc. (AXTI - Free Report) is seeing accelerating demand for its indium phosphide (InP) substrates as hyperscalers expand AI data centers and deploy increasingly GPU-dense computing systems. These facilities require faster optical links to move growing volumes of data, making InP-based lasers and photodetectors increasingly important.
The transition to 800G and 1.6T optical transceivers is a major catalyst. AXT's InP revenues reached $54.3 million in third-quarter 2026, primarily driven by data center applications. Total revenues surged 162% year over year and 54% sequentially to a record $73.4 million. Non-GAAP gross margin expanded to 56.1% from 45% in the preceding quarter, benefiting from higher volumes, favorable product mix and increasing InP prices.
Demand extends across geographies. Management believes AXT's materials are deployed at multiple U.S. hyperscalers, while China's growing AI investments have accelerated demand for InP-based lasers. The company's backlog exceeded $500 million, with customers on allocation as demand outstripped available supply. AXT surpassed its 2026 goal of doubling InP capacity and plans further expansion in 2027.
The shift toward higher-value 4-inch wafers, emerging 6-inch capabilities and future co-packaged optics could add to this momentum. Although scaling production remains critical, surging optical connectivity requirements and a substantial backlog suggest AI data center expansion can sustain AXT's substrate-driven revenue growth.
Rivals Benefiting From the Trend
Coherent (COHR - Free Report) is benefiting from growing demand for InP-based lasers, photodiodes and 1.6T optical transceivers. Coherent reported Datacenter & Communications revenues of $1.95 billion in first-quarter fiscal 2027, up 79% year over year. With advanced 6-inch InP fabrication capabilities, Coherent is expanding its optical manufacturing footprint. However, its substrate supply agreement with AXT also makes it an important customer rather than solely a competitor.
Lumentum (LITE - Free Report) is capitalizing on AI data center investments through its InP lasers, optical circuit switches and cloud networking solutions. Lumentum reported first-quarter fiscal 2027 revenues of $1.26 billion, up 136.5% year over year, driven by strong optical infrastructure demand. Lumentum is also expanding domestic InP manufacturing capacity while maintaining a long-term substrate supply agreement with AXT, reinforcing their complementary positions in the optical connectivity ecosystem.
Shares of AXTI have soared 258% in the past year, significantly outperforming the broader Zacks Computer and Technology sector, which has gained 5.9%.
AXTI’s One-Year Price Performance
Image Source: Zacks Investment Research
AXTI’s valuation appears stretched, with the stock trading at a trailing 12-month price-to-sales (P/S) ratio of 15.14X, well above the Zacks Electronics – Semiconductors industry average of 8.51X. The company carries a Value Score of F.
AXTI’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for AXTI’s 2026 earnings is pegged at $1.17 per share, reflecting upward revisions over the past 30 and 60 days. This compares favorably with a loss of 41 cents per share reported in 2025.
View the Zacks #1 Rank List
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AXTI's AI Data Center Boom: Can Substrate Demand Sustain Growth?
Key Takeaways
AXT, Inc. (AXTI - Free Report) is seeing accelerating demand for its indium phosphide (InP) substrates as hyperscalers expand AI data centers and deploy increasingly GPU-dense computing systems. These facilities require faster optical links to move growing volumes of data, making InP-based lasers and photodetectors increasingly important.
The transition to 800G and 1.6T optical transceivers is a major catalyst. AXT's InP revenues reached $54.3 million in third-quarter 2026, primarily driven by data center applications. Total revenues surged 162% year over year and 54% sequentially to a record $73.4 million. Non-GAAP gross margin expanded to 56.1% from 45% in the preceding quarter, benefiting from higher volumes, favorable product mix and increasing InP prices.
Demand extends across geographies. Management believes AXT's materials are deployed at multiple U.S. hyperscalers, while China's growing AI investments have accelerated demand for InP-based lasers. The company's backlog exceeded $500 million, with customers on allocation as demand outstripped available supply. AXT surpassed its 2026 goal of doubling InP capacity and plans further expansion in 2027.
The shift toward higher-value 4-inch wafers, emerging 6-inch capabilities and future co-packaged optics could add to this momentum. Although scaling production remains critical, surging optical connectivity requirements and a substantial backlog suggest AI data center expansion can sustain AXT's substrate-driven revenue growth.
Rivals Benefiting From the Trend
Coherent (COHR - Free Report) is benefiting from growing demand for InP-based lasers, photodiodes and 1.6T optical transceivers. Coherent reported Datacenter & Communications revenues of $1.95 billion in first-quarter fiscal 2027, up 79% year over year. With advanced 6-inch InP fabrication capabilities, Coherent is expanding its optical manufacturing footprint. However, its substrate supply agreement with AXT also makes it an important customer rather than solely a competitor.
Lumentum (LITE - Free Report) is capitalizing on AI data center investments through its InP lasers, optical circuit switches and cloud networking solutions. Lumentum reported first-quarter fiscal 2027 revenues of $1.26 billion, up 136.5% year over year, driven by strong optical infrastructure demand. Lumentum is also expanding domestic InP manufacturing capacity while maintaining a long-term substrate supply agreement with AXT, reinforcing their complementary positions in the optical connectivity ecosystem.
AXTI’s Share Price Performance, Valuation & Estimates
Shares of AXTI have soared 258% in the past year, significantly outperforming the broader Zacks Computer and Technology sector, which has gained 5.9%.
AXTI’s One-Year Price Performance
Image Source: Zacks Investment Research
AXTI’s valuation appears stretched, with the stock trading at a trailing 12-month price-to-sales (P/S) ratio of 15.14X, well above the Zacks Electronics – Semiconductors industry average of 8.51X. The company carries a Value Score of F.
AXTI’s Valuation
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for AXTI’s 2026 earnings is pegged at $1.17 per share, reflecting upward revisions over the past 30 and 60 days. This compares favorably with a loss of 41 cents per share reported in 2025.
Image Source: Zacks Investment Research
AXT stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.