AXT's $100M backlog faces its biggest test in export approvals

AXT Inc.'s indium phosphide substrate backlog topped $100 million in the first quarter, more than doubling from $60 million three months earlier, as AI data-center optical networking demand accelerates faster than supply can scale.

"The single most significant gating factor for growth is export permit approvals," AXT management said, describing the regulatory process as difficult to predict and a persistent source of revenue timing uncertainty.

First-quarter revenue reached $26.9 million, up 39.1% from a year earlier and 17% sequentially, driven by indium phosphide sales that surged to $13.6 million from $8 million in the prior quarter. Adjusted gross margin improved to 29.9% from 21.5% sequentially and negative 6.1% a year earlier, while the company narrowed its adjusted loss to 1 cent per share from 5 cents.

The backlog — representing orders from nearly all major Tier 1 optical customers, including laser manufacturers and transceiver module makers — gives AXT visibility extending into 2027 and beyond. Management believes the optical components market could expand four to six times over the next three to five years, but export permit delays could prevent the company from converting that demand into revenue at the pace investors expect.

Capacity Expansion Outpaces Peers

AXT raised $632.5 million in capital and is running ahead of schedule on plans to double indium phosphide capacity in 2026 relative to fourth-quarter 2025 levels, with another doubling targeted for 2027 through a dedicated manufacturing facility. The company designs and builds its own crystal-growth furnaces and controls key raw material supplies, reducing reliance on external suppliers and enabling faster scaling than competitors.

By comparison, Coherent Corp. has highlighted ongoing constraints in indium phosphide as a bottleneck for its own optical networking products, while ASE Technology posted 21.2% year-over-year revenue growth and Applied Materials reported 11.4% growth in their most recent quarters. AXT's backlog growth — from $60 million to more than $100 million within a single quarter — outpaces those peers as an indicator of accelerating demand in the semiconductor materials supply chain.

China Demand Accelerates, But Permits Loom

Revenue from China's indium phosphide laser market more than doubled sequentially in the first quarter and is expected to double again in the second quarter, management said. The company expects the second quarter to represent the largest indium phosphide revenue quarter in AXT's history.

Yet export approvals remain the largest near-term uncertainty. Management has repeatedly said permit timing is difficult to predict and continues to influence revenue realization. Growth in gallium arsenide and certain international shipments also depends on obtaining permits. Faster approvals would unlock substantial upside from the existing backlog, while prolonged regulatory uncertainty could limit growth despite robust end-market demand.

AXT shares have rallied 557.6% year to date, far outpacing ASE Technology's 148.4% gain and Applied Materials' 94.9% advance. The consensus estimate calls for earnings growth of 168.3% in 2026 and 140.5% in 2027. At current levels, the market is pricing in a best-case scenario for permit approvals and capacity execution. Any slowdown in export clearance or data-center spending could introduce downside risk to those expectations.

This article is for informational purposes only and does not constitute investment advice.