AXT's 9.4% Drop and 463rd-Ranked $300M Volume Signal AI Growth vs. Earnings Miss and Permit Delays

Market Snapshot

AXT (AXTI) shares fell 9.4% on February 26, 2026, amid a 24.6% decline in trading volume to $0.3 billion, ranking 463rd in market activity. The stock’s sharp drop followed mixed earnings results, with the company reporting a $23.04 million revenue and $3.55 million net loss in Q4 2025, alongside a $21.26 million full-year loss. Despite management’s optimism about demand for indium phosphide wafers tied to AI and data centers, the earnings miss and widening annual losses contributed to investor caution.

Key Drivers

AXT’s Q4 2025 performance highlighted a narrowing quarterly loss but a deteriorating annual outlook, with full-year losses widening to $21.26 million. The company’s focus on indium phosphide substrates for AI and data center applications remains a core narrative, but execution risks persist. Management emphasized plans to double manufacturing capacity by 2026, having already increased capacity by 25% since October 2025. However, this expansion hinges on timely China export permits, a recurring bottleneck that could amplify revenue volatility and margin pressures.

The earnings report underscored divergent analyst views on AXT’s long-term prospects. Optimistic forecasts project $154 million in 2028 revenue and $4 million in earnings, while more cautious analyses highlight risks from export permit delays and customer concentration. A recent Simply Wall St analysis valued the stock at $9.50, a 67% discount to its current price, based on projected 2028 earnings of $16.6 million. Conversely, other fair value estimates suggest the stock could reach $26.00, reflecting confidence in AI-driven demand. These contrasting narratives reflect the sector’s high uncertainty and the stock’s sensitivity to regulatory and operational hurdles.

Demand for indium phosphide wafers has remained a key tailwind, driven by growth in AI and co-packaged optics. AXT’s CEO noted a $49 million backlog and 40% market share in the segment, with non-GAAP gross margins improving to 22.4% in Q3 2025. However, the company’s reliance on a narrow customer base and the need for timely export approvals remain critical risks. Recent earnings guidance for Q4 2025 revenue of $27–30 million fell short of some expectations, compounding concerns about near-term execution.

The investment case for AXT hinges on its ability to convert strong demand into sustainable profitability while navigating regulatory and operational challenges. While management’s capacity expansion targets align with projected growth in 6-inch indium phosphide demand, the risk of delayed shipments could exacerbate financial pressures. Analysts also caution that customer concentration—particularly in China—could expose the company to sudden shifts in demand or regulatory scrutiny.

In summary, AXT’s stock movement reflects a tug-of-war between bullish long-term AI tailwinds and near-term execution risks. The company’s aggressive capacity plans and market share in indium phosphide position it to benefit from sector growth, but delays in export permits and earnings shortfalls continue to weigh on investor sentiment. As the stock trades at a significant discount to some fair value estimates, the path to profitability will depend on resolving regulatory bottlenecks and demonstrating consistent revenue conversion from its expanding capacity.