AXTI Surges 18% on AI Demand Hype, Nears 52-Week High – What’s Next?

Summary
• AXTI’s stock rockets 18.4% to $26.165, hitting a 52-week high of $26.66
• Analysts remain split, with a 'Hold' consensus and average target of $13.75
• Sector peers rally as TSMC’s 35% profit surge fuels AI optimism
• Insiders sold $3.33M in shares, yet own 8.8% of the stock

AXTI’s explosive intraday move has thrust it into the spotlight, driven by surging demand for indium phosphide in AI infrastructure. The stock’s 18.4% rally—its largest single-day gain in years—aligns with a broader semiconductor equipment sector rebound, as TSMC’s earnings beat and AI-driven chip demand create a tailwind. With technical indicators flashing overbought signals and options volatility spiking, the question now is whether this momentum can sustain.

Indium Phosphide Demand for AI Drives AXTI’s Record High
AXTI’s 18.4% surge is directly tied to its role in supplying indium phosphide wafers, a critical material for high-performance AI chips. Recent news highlights surging demand for these substrates in data centers and advanced computing applications. While the company remains unprofitable (negative net margin of 25.22%), the market is betting on its position in the AI supply chain. Analysts’ mixed ratings—ranging from Craig Hallum’s 'Buy' to B. Riley’s 'Neutral'—reflect uncertainty over valuation, but the stock’s proximity to its 52-week high and TSMC’s sector-wide optimism have ignited short-term bullish sentiment.

Semiconductor Equipment & Materials Sector Rally Led by TSMC’s Earnings Beat
The semiconductor equipment & materials sector surged alongside AXTI, with Applied Materials (AMAT) rising 7.1% on TSMC’s 35% profit growth and capital expenditure boost. TSMC’s confidence in AI-driven demand has cascaded through the supply chain, benefiting firms like AXTI that supply niche materials. While AXTI’s 18.4% move outpaces AMAT’s 7.1%, the sector’s broad strength suggests AXTI’s rally is part of a larger narrative of AI infrastructure investment.

Options Playbook: Leveraging AXTI’s Volatility with Gamma-Driven Calls
• MACD: 2.77 (bullish divergence), RSI: 70.9 (overbought), Bollinger Bands: Price at $26.165 (near upper band of $25.81)
• 200D MA: $5.46 (far below current price), 30D MA: $16.32 (support zone)

AXTI’s technicals suggest a short-term overbought condition, but the stock’s proximity to its 52-week high and sector momentum warrant a cautious bullish stance. Key levels to watch: $25.81 (Bollinger upper band) and $14.64 (30D support).

Top Options Picks:
• AXTI20260220C25 (Call, $25 strike, Feb 20 expiry):
- IV: 159.51% (high volatility)
- Leverage Ratio: 4.49%
- Delta: 0.64 (moderate sensitivity)
- Theta: -0.0798 (rapid time decay)
- Gamma: 0.028 (strong price sensitivity)
- Turnover: 155,739 (liquid)
- Payoff (5% up): $1.31 per contract (max(0, 27.47 - 25))
This call offers high gamma and liquidity, ideal for a short-term rally.

• AXTI20260220C22.5 (Call, $22.5 strike, Feb 20 expiry):
- IV: 30.00% (moderate)
- Leverage Ratio: 3.75%
- Delta: 0.957 (high sensitivity)
- Theta: -0.0269 (slow decay)
- Gamma: 0.0364 (very strong sensitivity)
- Turnover: 93,423 (liquid)
- Payoff (5% up): $4.97 per contract (max(0, 27.47 - 22.5))
This deep-in-the-money call benefits from AXTI’s current price proximity to the strike, offering downside protection and high gamma for a sustained move.

Action: Aggressive bulls may consider AXTI20260220C22.5 into a breakout above $25.81, while AXTI20260220C25 suits shorter-term bets on AI-driven momentum.

Backtest AXT Stock Performance
The backtest of AXTI's performance following an 18% intraday increase from 2022 to now shows a significant strategy return of 68.67%, with a benchmark return of 42.97% and an excess return of 25.70%. The strategy's CAGR is 14.25%, indicating a strong compound growth rate. However, the strategy has a high maximum drawdown of 88.29% and a volatility of 81.21%, which suggests a risky profile with significant losses during downturns.

AXTI’s AI Bet: Ride the Wave or Watch the Overbought Signals?
AXTI’s 18.4% surge reflects speculative fervor around AI-driven indium phosphide demand, but its overbought RSI (70.9) and negative net margin raise caution. The stock’s ability to hold above $25.81 (Bollinger upper band) will be critical, with AMAT’s 7.1% rally signaling sector-wide optimism. Investors should monitor TSMC’s guidance and AXTI’s insider activity (8.8% ownership) for clues. For now, the AXTI20260220C22.5 call offers a balanced play on a potential breakout, but a pullback to the 30D MA at $14.64 could test conviction. Watch for $25.81 hold or sector headwinds.