AXT Q1 Earnings Call Highlights

Key Points

• AXT reported Q1 revenue of $26.9 million, led by strengthening demand for Indium Phosphide (InP) which generated $13.6 million, helping non-GAAP gross margin rise to 29.9% from negative 6.1% a year earlier.
• The company completed a $632.5 million capital raise to fund Tongmei’s InP capacity expansion, has an InP backlog topping $100 million, and plans to double InP capacity in 2026 and again in 2027 with targets of roughly $35M/quarter by end-2026 and $65–70M/quarter by end-2027/early-2028.
• Management expects to be profitable on both GAAP and non-GAAP bases in Q2 (non-GAAP EPS $0.06–$0.08) with about $34 million of revenue already realizable, but future upside depends heavily on the timing of export permits and ongoing pricing actions.

AXT NASDAQ: AXTI reported first-quarter 2026 revenue of $26.9 million, up from $23.0 million in the fourth quarter of 2025 and $19.4 million in the year-ago quarter, as the company pointed to strengthening demand for indium phosphide (InP) substrates tied to AI-related data center upgrades and optical component growth.

Chief Financial Officer Gary Fischer said InP revenue was $13.6 million in the quarter, “primarily from data center applications.” Gallium arsenide (GaAs) revenue was $5.4 million, germanium substrates contributed $200,000, and consolidated raw material joint venture revenue was $7.6 million.

Margins improve as mix shifts toward indium phosphide

Fischer said non-GAAP gross margin improved to 29.9% in the first quarter, compared with 21.5% in Q4 2025 and negative 6.1% in Q1 2025. On a GAAP basis, gross margin was 29.6%, versus 20.9% in Q4 2025 and negative 6.4% a year earlier.

Management attributed the margin improvement largely to higher volume and a richer mix of InP. In response to an analyst question on what drove the gross margin increase, Fischer said there was “some” impact from pricing but that the “primary drivers are the traditional 2 drivers that we highlight. 1 is volume is up, and the other is the mix is rich towards Indium Phosphide.” He added that pricing actions are “being put in place,” but investors may see the impact “later this year.”

Non-GAAP operating expenses were $8.6 million, up from $7.5 million in the prior quarter. Non-GAAP operating loss narrowed to $550,000 from $2.6 million in Q4 2025 and $9.6 million in Q1 2025. Non-GAAP net loss was $585,000, or $0.01 per share, compared with a $2.3 million loss, or $0.05 per share, in the fourth quarter.

Fischer said cash, cash equivalents, and investments decreased by $5.1 million to $123 million as of March 31, while accounts receivable increased by $5.2 million. Net inventory rose by about $8.5 million to $90.2 million.

Capacity expansion plans tied to record backlog and forecasts

Chief Executive Officer Dr. Morris Young described the period as “an incredibly exciting time for AXT,” citing the completion of a $632.5 million capital raise to support Tongmei’s InP capacity expansion, research and development in products such as 6-inch InP, and working capital needs.

Young said the company’s InP backlog has climbed to “a new high of over $100 million” and that AXT is “running ahead of our plan to double our Indium Phosphide capacity this year from Q4 of 2025 levels.” He also outlined additional expansion: “Beyond our 2026 capacity expansion, we’re planning to double our Indium Phosphide capacity again in 2027 with a new facility near our current one that we will be dedicated to Indium Phosphide wafer production.”

In the Q&A, Young provided a revenue-based capacity framing, saying AXT expects to reach “about $35 million per quarter capability by the end of 2026” for InP, after having increased capacity about 25% in Q4 2025 and aiming to double that in 2026. VP of Business Development Tim Bettles added that after completing the next phase of expansion, “by the end of 2027, maybe early 2028,” AXT expects to be “somewhere in the region of $65 million-$70 million of capacity per quarter.”

Young said the company is also planning for 2028 expansion and noted that “scale matters” in the InP market and that barriers to entry are high.

Demand drivers: AI infrastructure, optical growth, and China build-out

Young said AXT expects sequential revenue growth in Q2, “driven primarily by growth in Indium Phosphide,” and described Q2 as expected to be “our largest quarter for Indium Phosphide in AXT’s history.” He tied U.S. demand to AI infrastructure and optical transceiver needs, saying “the massive AI infrastructure build-out and planned CapEx spending by cloud services and AI platform providers in the U.S. is the primary driver for EML and silicon photonics-based optical transceivers, as well as high-speed photodetectors.” Young added, “We believe that today our material is being used in multiple U.S. hyperscalers.”

He also highlighted growth in China, saying AXT’s revenue related to the “indium phosphide-based laser market in China more than doubled in Q1 from the prior quarter” and that the company expects it “to double again in Q2.” Bettles later estimated that in Q2, China demand could represent “probably about 30% of the overall Indium Phosphide global market demand that we’re seeing,” potentially rising toward 40% later in the year.

On product evolution, Young said AXT is progressing on a 6-inch InP product “for both iron doped and sulfur doped specifications,” and expects a meaningful portion of capacity expansion to focus on 6-inch crystal growth technology. In discussing mix, Young said iron-doped demand has increased substantially, with the large-diameter mix “almost like iron doped is 40%, 60%.” Bettles said 3-inch remains prominent for lasers, while high-speed detector applications have largely transitioned to 4-inch, with longer-term plans to move to 6-inch.

Export permits, pricing actions, and profitability outlook

Export permits remained a central theme. Young said export permits in Q1 were “slightly better than our guidance” and started Q2 “off to a solid start,” though Fischer emphasized that future revenue depends heavily on “the success and timing of getting export permits,” which is “not predictable, nor in our control.”

For Q2, Fischer said AXT has “approximately $34 million in revenue that can be realized in Q2 across our substrate product lines and raw materials” for which the company either already has permits or does not require them, with “a high degree of confidence” in recognizing that revenue. He said there could be “even significant upside” if additional permits are received in time.

Fischer guided to non-GAAP operating expenses of about $9.3 million in Q2 and GAAP operating expenses of about $10 million, and said the company expects “to achieve profitability on both a GAAP and non-GAAP basis in Q2.” He projected non-GAAP net income of $0.06 to $0.08 per share and GAAP net income of $0.05 to $0.07 per share, with an estimated Q2 share count of about 63.5 million shares.

On pricing, Bettles said the company is “raising some of our prices,” citing “recent pricing increase in raw materials, specifically with indium,” and said AXT is working to “globalize our pricing” across regions. Young added that pricing power should improve as the market migrates to larger diameters and higher specifications, where “our product shines.”

AXT also discussed its plan to list subsidiary Tongmei in China’s STAR Market. Fischer said the company remains “very interested in completing the IPO,” describing Tongmei as still in process as part of a more selective group of prospective listings and “considered a Chinese company” viewed as “a good IPO candidate” in China.

About AXT NASDAQ: AXTI

AXT, Inc NASDAQ: AXTI is a global supplier of compound and single-element semiconductor substrates, offering a range of materials critical for high-performance electronic and optoelectronic devices. Founded in 1986 and headquartered in Fremont, California, AXT specializes in the development, manufacture and distribution of wafers composed of gallium arsenide (GaAs), indium phosphide (InP), gallium nitride (GaN) and other compound semiconductor materials. These substrates serve as the foundational platforms for devices used in data communications, wireless infrastructure, advanced computing, consumer electronics and photovoltaic applications.

AXT's product portfolio encompasses a variety of wafer sizes, dopant concentrations and crystal orientations, tailored to meet the precise specifications of its customers.

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