AXT Inc Shares Jump Another 13% as AI-Driven Chip Substrate Demand Keeps Fueling Historic Rally and More

Shares of AXT Inc continued an extraordinary rally Wednesday, climbing another 12.61% to $73.50, extending a run that has seen the compound semiconductor substrate maker’s stock repeatedly post double-digit percentage gains in the days since a blowout second-quarter earnings report at the end of July.

The latest advance builds on a string of powerful sessions for AXT, a small-cap materials company whose shares have surged from the low $40s in mid-July to well above $70 in the weeks since, driven by surging demand for the indium phosphide substrates used in high-speed optical connectivity for artificial intelligence data centers.

A Quarter That Shattered Expectations

AXT’s rally traces back to its second-quarter results, released July 30, which showed revenue of $47.59 million, up 77% from the first quarter and 164% higher than the same period a year earlier, comfortably beating the $34.1 million analysts had expected. Adjusted earnings came in at 19 cents per share, nearly three times the 7-cent consensus forecast, marking a dramatic turnaround from a loss in the prior-year period.

The results were driven primarily by record indium phosphide revenue of $30.7 million during the quarter, reflecting surging demand tied to AI and data center optical connectivity applications. Following the earnings release, AXT shares closed the regular session up 26.89% at $46.91, then climbed another 21.28% in after-hours trading to $56.93, before continuing to extend those gains in the sessions that followed.

Guidance and Backlog Signal More Growth Ahead

For the third quarter, AXT guided to non-GAAP earnings per share of 30 to 32 cents on approximately $66 million in revenue, a forecast far above prior Street estimates that had anticipated a much more modest recovery. Management said the company’s order backlog for indium phosphide products had grown to more than $100 million, giving the company meaningful visibility into demand well beyond the current quarter.

The company has laid out ambitious expansion plans to meet that demand, targeting more than a doubling of its indium phosphide production capacity by the end of 2026, with a further capacity expansion planned for 2027 aimed at reaching a quarterly revenue run rate of approximately $130 million by the end of that year. Long-term supply agreements with Coherent, Casela and Lumentum are expected to help support that growth trajectory, though the Lumentum agreement is not expected to begin contributing meaningfully until 2027. The Lumentum deal specifically includes $87 million in upfront deposits, locking in future demand for AXT’s indium phosphide wafers.

A Volatile but Well-Supported Rally

AXT’s stock has exhibited pronounced volatility even amid its overall upward trajectory, with the company posting several wide-range trading days in recent weeks, including intraday swings of $6 to $8 per share. That volatility has continued even as the underlying fundamental story, robust revenue growth, expanding margins and a rapidly growing order backlog, has remained consistently supportive of the stock’s advance, according to traders who have tracked the name closely through its recent run.

Not every analyst has embraced the rally without reservation. B. Riley Securities lowered its price target on AXT to $52 from $73 even as the firm acknowledged the strength of the company’s underlying momentum, citing concerns about the stock’s rapid appreciation relative to its longer-term fundamentals. That kind of divergence between bullish operational momentum and more conservative price targets has become a recurring theme in coverage of the stock as its rally has continued to extend further than many analysts initially anticipated.

A Broader Strategic Backdrop

AXT’s growth has also been shaped by broader shifts in its supply chain and corporate structure. The company noted during its most recent earnings call that its majority-owned Chinese subsidiary, Tongmei, is moving toward a listing on the Stock Exchange of Hong Kong, a transition that creates a redemption right tied to roughly $49 million invested by private equity funds back in 2021. Management has said it is in discussions with those investors, who have so far indicated an intention to continue their investment rather than seek redemption, while the company maintains sufficient cash reserves to honor any redemption requests should they arise.

With AXT’s order backlog continuing to build and capacity expansion plans extending well into 2027, investors are likely to watch closely whether the company can continue converting its rapidly growing indium phosphide demand into sustained margin improvement, particularly as the stock’s valuation has climbed to levels that leave less room for any disappointment in future quarters relative to the exceptionally high bar the company has now set for itself.