AXTI Q2 Earnings Beat on Record InP Demand, Revenues Rise Y/Y

AXTI's InP Sales Reach a Record High in Q2

Indium phosphide (InP) revenues reached a company-record $30.7 million in the reported quarter. Demand was primarily tied to data-center applications, including the transition to 800G and 1.6T optical transceiver modules.

Management expects indium phosphide demand to remain ahead of available supply as hyperscalers deploy increasingly dense computing architectures. These systems require faster and more power-efficient optical links to move data between processors and across data centers.

AXT Posts Broad-Based Sequential Growth

Gallium arsenide revenues totaled $6.6 million, supported by semiconductor wafer demand for industrial robotics and data-center laser applications. The company also continued to see demand for semi-insulating wafers used in wireless radio-frequency devices.

Germanium substrate revenues were $272,000. Revenues from consolidated raw-material joint ventures reached $10 million, reflecting the strategic value of AXT's vertically integrated supply chain. The five largest customers generated approximately 30% of total revenues, while no single customer accounted for more than 10%.

AXTI's Margins Expand on Volume and Mix

In the second quarter, non-GAAP gross margin expanded to 45% from 29.9% in the prior quarter of 2026 and 8.2% in the year-ago quarter. The improvement reflected higher production volumes, better fixed-cost absorption and a richer mix led by indium phosphide products.

Non-GAAP operating expenses increased to $10.2 million from $8.6 million in the preceding quarter and $7.6 million a year earlier. Despite the higher cost base, the company delivered non-GAAP operating income of $11.2 million, compared with an operating loss of $0.55 million in the previous quarter and $6.1 million in the year-ago period.

AXT Accelerates Manufacturing Capacity

AXT is on track to more than triple its quarterly indium phosphide revenue opportunity by the end of 2026. Management expects quarterly capacity to reach roughly $60 million as the company adds production lines, improves furnace designs and raises manufacturing output.

AXT plans to more than double capacity again in 2027, targeting approximately $130 million in quarterly revenue capacity by year-end. Larger-diameter wafers are also supporting the expansion. Customers are migrating from two-inch to three- and four-inch substrates, while the company continues developing six-inch indium phosphide wafers.

AXTI's Supply Deals Strengthen Visibility

The company recently signed long-term supply agreements with Casela, Coherent and Lumentum. AXT received wafer prepayments of $22.3 million from Casela and $25.4 million from Coherent during the quarter. These amounts will be recognized as revenues as products are shipped under the agreements.

Management said the agreements should contribute more meaningfully beginning in the third quarter and continue supporting growth through 2027 and beyond. The Casela contract formally begins in 2027. Backlog extends into next year, while customer demand continues to exceed the company's production capacity.

AXTI’s Balance Sheet Snapshot

As of June 30, 2026, Cash, cash equivalents and investments were $748.8 million, higher than $123.2 million as of March 31, 2026. This growth was primarily reflecting approximately $632 million in gross proceeds from an April stock offering.

AXT Guides for Higher Q3 Profitability

AXT has approximately $66 million of third-quarter revenues for which it already possesses export permits or does not require permits. Management expressed high confidence in recognizing this amount and noted that additional permit approvals could create significant upside.

For the third quarter of 2026, the company projects non-GAAP earnings of 30-32 cents per share and GAAP earnings of 29-31 cents. Non-GAAP operating expenses are expected to be approximately $10.5 million, while GAAP operating expenses are projected at nearly $11 million. The estimated share count is 66.5 million.

AXTI’s Zacks Rank & Stocks to Consider

Currently, AXT carries a Zacks Rank #3 (Hold).

Onto Innovation ONTO, Nova Ltd. NVMI and Paycom Software PAYC are among the better-ranked stocks that investors can consider in the broader Zacks Computer and Technology sector. Currently, Onto Innovation sports a Zacks Rank #1 (Strong Buy), while Nova and Paycom Software carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Onto Innovation shares have surged 58.7% year to date. ONTO is scheduled to report its second-quarter 2026 results on Aug. 6.

Nova shares have gained 20% year to date. NVMI is scheduled to report its second-quarter 2026 results on Aug. 6.

Paycom Software shares have returned 1.4% year to date. PAYC is scheduled to report its second-quarter 2026 results on Aug. 5.

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