AXT Stock Falls 22% in Three Months: 3 Reasons the Dip Looks Attractive
Shares of AXT, Inc. AXTI have lost 22% over the past three months, underperforming the Zacks Computer and Technology sector’s 1.7% growth and the Zacks Electronics – Semiconductors industry's 10.7% decline.
AXTI shares have also lagged several industry peers, including Ambarella AMBA, Entegris ENTG and Lam Research LRCX. While Ambarella shares have gained 4.5%, Entegris and Lam Research shares have declined 1.4% and 12.9%, respectively, over the same period.
Three-Month Stock Performance
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The recent pullback in AXTAXTI-- shares comes after a powerful rally. Its stock price and trading volume increased significantly during late 2025 and the first two quarters of 2026. Despite the recent weakness, AXT shares remain up an impressive 322.4% year to date. This suggests that some of the recent decline could reflect profit-taking following the stock’s substantial gains rather than a deterioration in its underlying business.
At the same time, AXT continues to face important near-term challenges. Its operations rely heavily on Chinese subsidiary Beijing Tongmei, leaving the company exposed to changing tariffs, export controls and uncertainty surrounding InP export permits. AXT has said that these restrictions have affected InP revenues and that the timing of U.S. export approvals remains uncertain.
However, the recent 22% decline does not appear to reflect weakening demand. AXT is benefiting from strong demand for indium phosphide (InP) substrates used in high-speed optical connectivity and AI data center infrastructure. In the second quarter of 2026, substrate revenues increased 232.7% year over year, primarily driven by higher demand for InP wafer substrates for data center applications. So, from an investor's viewpoint, the dip offers a massive opportunity to buy the stock now. Let’s dig deep to find out more.
AXTI Benefits From Aggressive InP Capacity Expansion
AXTI is aggressively expanding its indium phosphide (InP) manufacturing capacity to capture strong and sustained customer demand. Management has committed to doubling InP capacity in 2026 and reported that the expansion is ahead of schedule. The company expects its InP revenue opportunity to more than triple by the end of 2026, with significant expansion expected in 2027.
This opportunity is supported by three factors: faster-than-expected capacity additions, higher manufacturing productivity through new crystal-growing furnace designs and increasing customer adoption of larger-diameter, higher-value substrates. AXT’s InP backlog has already grown to more than $100 million, while customer demand continues to outpace supply. Looking further ahead, management is planning to double capacity again in 2027 at an adjacent location.
The company is also making progress on 6-inch InP substrates, which are significantly more difficult to produce in volume than 3- or 4-inch wafers. From a long-term investment perspective, the combination of capacity expansion, productivity gains, larger substrates and strong backlog provides AXT with a substantial runway to increase InP revenues as optical infrastructure demand expands.
AXTI Strengthens Revenue Visibility With Supply Agreements
The company is strengthening its long-term revenue visibility through supply and capacity agreements with key InP customers. During 2026, AXT’s Tongmei subsidiary entered into a long-term supply agreement with Casela, under which Casela committed to purchase approximately $25.4 million of InP wafer substrates during 2027, with payments structured partly as a prepayment.
AXT also entered into a three-year Master Development and Supply Agreement with Coherent covering the development and supply of 6-inch InP wafer substrates. Coherent provided a $22.3 million prepayment, while AXT committed to expand relevant manufacturing capacity from 2026 through 2028.
In addition, AXT signed a six-year Capacity Reservation Agreement with Lumentum covering InP wafer substrates. Lumentum agreed to an initial $43.5 million deposit, with a second $43.5 million deposit contemplated for 2028, while committing to minimum annual product capacity subject to the agreement’s terms. These arrangements provide greater visibility into future demand and reinforce customer relationships. They also give AXT greater confidence that its planned InP capacity expansion is necessary to support customers’ longer-term requirements.
AXTI Rides on AI Data-Center Optical Demand
AXTI is positioned to benefit from a structural, multiyear increase in demand for InP driven by AI data-center optical connectivity. As hyperscalers deploy increasingly GPU-dense architectures, they require higher-speed and lower-power photonics to move data more efficiently. The near-term industry migration toward 800G and 1.6T transceiver modules is particularly important because InP-based lasers and detectors are used for higher-performance optical links.
Over the longer term, the move toward near-packaged and co-packaged optics is expected by management to create additional demand for InP materials. The company therefore views current trends as supporting a durable build-out of optical infrastructure and a multiyear InP demand cycle.
This opportunity is already reflected in AXT’s operating performance; second-quarter 2026 revenues increased 164.8% year over year to $47.6 million, with higher demand for InP wafer substrates used in data-center applications and passive optical networks identified as a primary driver. Management also said AXT materials are being used by multiple U.S. hyperscalers and expects end-customer use to broaden. Beyond the United States, China presents another potentially important market that could help keep AXT’s growth trajectory strong.
AXTI Is Trading Above 50- and 200-Day SMA
AXTI is trading above its 50-day and 200-day simple moving average (SMA), indicating a bullish trend. These widely followed indicators help investors assess the stock’s overall price direction (uptrend or a downtrend) while identifying potential support and resistance levels.
AXTI's SMA Chart: 50- and 200-day
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AXTI Stock Trading at a Premium
AXTI currently trades at a trailing twelve-month P/S ratio of 34.85X, well above the industry average of 16.28X, its median of 22.44X and the sector’s 8.36X. Its Value Score of F also indicates that the stock is relatively expensive. Compared with peers Ambarella, Entegris and Lam Research, which trade at P/S ratios of 7.25X, 6.61X and 17.08X, respectively, AXTIAXTI-- commands a substantially higher multiple.
ATXI’s lofty valuation can be justified by an exceptionally strong growth trajectory and expanding InP opportunity.
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Conclusion
Despite its premium valuation and export-related risks, AXTI’s strong InP demand, expanding capacity, long-term customer agreements and exposure to AI data-center optical connectivity support a compelling growth outlook. Given the recent pullback and robust long-term growth prospects, now appears to be an attractive time for investors to add AXTI stock to their portfolios.
AXT stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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