Studio Innovation highlights AXT’s AI infrastructure thesis as backlog hits record high
Indium phosphide demand drives growth for AXT, Inc., with management targeting a doubling of production capacity by year-end amid surging hyperscale data centre requirements.
Studio Innovation has published a bullish investment thesis for AXT, Inc. (AXTI) on its Substack platform, citing surging demand for optical connectivity infrastructure supporting artificial intelligence and hyperscale data centres. The analysis positions the semiconductor substrate manufacturer as a key beneficiary of the accelerating build-out of high-speed optical transceivers required for next-generation computing.
AXT reported a 39 per cent year-on-year revenue increase to $26.9 million in the first quarter of 2026, alongside a 17 per cent sequential rise. This growth was primarily driven by indium phosphide substrates, which contributed $13.6 million to the top line. The segment’s performance was bolstered by a significant improvement in non-GAAP gross margin, which climbed to 29.9 per cent from negative levels a year earlier, highlighting the operating leverage inherent in the business as volumes scale.
Management reported a record indium phosphide backlog exceeding $100 million for the first time in the company’s history. To capitalise on this demand, AXT plans to raise $632.5 million to expand production capacity, targeting a doubling of output by the end of 2026 and a further doubling by the end of 2027. The company is also pursuing long-term supply agreements with major customers, hyperscalers, and end users to secure its position in the expanding supply chain.
Demand from China more than doubled in the first quarter and is expected to double again in the second quarter. Management forecasts at least $34 million in second-quarter revenue and expects a return to both GAAP and non-GAAP profitability. The company is also progressing with six-inch product development and monitoring potential upside from export permit approvals.
As of May 29, AXTI shares were trading at $103.16, with a forward price-to-earnings ratio of 333.33. Hedge fund interest increased slightly, with 37 portfolios holding AXTI at the end of the first quarter, up from 34 in the previous quarter. Studio Innovation noted that while AXT is not currently listed among the 40 most popular stocks held by hedge funds, its exposure to AI-driven optical networking demand remains a critical factor for investors.
