Key Takeaways:
AXT's record indium phosphide backlog has crossed $100 million, signaling that the AI-driven shift from copper to optical interconnects is accelerating faster than supply can keep up.
AXT Inc. reported first-quarter revenue of $26.9 million, up 39.1% from a year earlier, with indium phosphide (InP) substrate sales reaching $13.6 million — largely driven by demand from data center optical networking and silicon photonics applications. The company's backlog, a forward-looking measure of customer commitments, exceeded $100 million for the first time, reflecting orders from hyperscalers and AI platform providers racing to deploy high-speed optical interconnect solutions.
"Customers are placing longer-term orders, discussing supply agreements and providing greater insight into future requirements," management said, adding that the optical components market could expand four to six times over the next three to five years. AXT is responding by doubling InP capacity in 2026 and planning another doubling in 2027, leveraging its vertically integrated supply chain and proprietary furnace technology to scale faster than competitors.
The urgency reflects a structural shift in AI data center architecture. As AI workloads grow, operators are moving from copper interconnects to optical fibers and photonic technologies that can handle higher bandwidth at lower power. TrendForce forecasts the combined co-packaged optics (CPO) and near-packaged optics (NPO) market will grow from roughly $100 million in 2025 to more than $39 billion by 2030. Nvidia is developing equipment that converts electrical signals to optical for intra-server communication, while NTT's IOWN initiative also relies on optical technology.
The InP supply chain is already showing strain. China's export restrictions on InP products, imposed in February 2025, have driven the average price of a 6-inch InP wafer up 250% to roughly $5,000. AXT and Sumitomo together control nearly 80% of global InP substrate production, according to Reuters, while JX Advanced Metals holds an estimated 10% share and recently announced plans to invest JPY 120 billion ($749 million) through fiscal 2030 to expand capacity up to tenfold.
Coherent Corp., which received a $2 billion investment from Nvidia earlier this year, warned of InP shortages during its May earnings call. Tower Semiconductor recently finalized a multi-year agreement with IQE to secure a long-term supply of InP epiwafers for AI data center optical connectivity solutions, underscoring the scramble for supply.
Export approvals remain the "single most significant" gating factor for AXT's growth, management said. While permit activity was stronger than anticipated in the first quarter and has remained healthy in the second, the timing and success of approvals are largely outside the company's control — creating a bull-versus-bear setup where faster approvals could unlock substantial upside from the existing backlog, while prolonged regulatory uncertainty could limit growth despite robust end-market demand.
AXT's capacity expansion positions it to capture a disproportionate share of the optical networking upgrade cycle, but the export risk means revenue realization may lag demand visibility. The company trades on its ability to convert a $100 million backlog into recognized revenue — a conversion rate that depends as much on geopolitics as on manufacturing execution. Faster permit approvals would validate the bullish thesis; any tightening of China-U.S. trade restrictions would test whether AXT's vertical integration provides enough insulation from supply chain disruption.
This article is for informational purposes only and does not constitute investment advice.
