AXT Rockets 42% in a Week as China's Grip on a Critical AI Material Turns a Tiny Chipmaker Into a Geopolitical Bet — Is $111 Justified?
Shares of AXT Inc. surged to $111.19 in pre-market Monday, extending a jaw-dropping 42% rally from last week's low of $78.36, as investors scramble to price in a reality that has suddenly gripped the AI supply chain: indium phosphide has emerged as a powerful trade weapon for Beijing that experts say could disrupt the global rollout of AI data centres.
A $5,000 Wafer That Used to Cost a Fraction of That
The catalyst is straightforward scarcity. China's export controls on indium phosphide have driven six-inch wafer prices up 250% to $5,000 , and the squeeze is real: Coherent's CEO flew to China with a U.S. business delegation partly to lobby on export-license delays. China produces 70% of global indium, and AXT and Japan's Sumitomo control nearly 80% of substrate manufacturing. For shareholders, the math is simple — when your product has no substitute and the price triples, even modest shipment volumes generate outsized revenue.
A Record Backlog, But the Permits Are the Bottleneck
AXT's indium phosphide backlog hit a record $60 million , yet the company still can't ship freely. AXT continues to face delays in obtaining Chinese export permits, which affect its ability to fulfill demand and recognize revenue.
That capacity build is now tightly linked to whether export permits improve in time for AXT to actually ship additional volume. The stock is pricing in demand it may not be allowed to deliver.
Doubling Capacity Into a Money-Losing Business
AXT is on track to double capacity by end of 2026, supporting a $35 million quarterly indium phosphide revenue run-rate — roughly $140 million annualized from a single product line. But trailing revenue sits around $88 million, with a gross margin of 21% and a negative operating margin of -13%.
Northland raised its price target to $125 from $90, reiterating an Outperform rating. Meanwhile, Wedbush hiked its target to $80 from $28 only in April — a figure the stock has already blown past.
The Valuation Assumes Everything Goes Right
At $111, AXT carries a market cap north of $4 billion against a still-unprofitable business. Analysts project $117.8 million in revenue and $16.6 million in earnings by 2028, requiring 11% annual revenue growth and a $40.6 million earnings swing. The trade thesis is compelling — a chokepoint material for AI with no substitute — but the stock now prices in permit resolution, flawless capacity execution, and sustained geopolitical tension all at once. Any single miss could unwind weeks of gains overnight.