AXT Inc. (NASDAQ: AXTI) is having a good Friday. The semiconductor wafer maker's shares are surging in premarket trading after the company delivered second-quarter results that blew past expectations, thanks to a surge in demand from AI data centers.
The numbers are hard to miss. AXT reported adjusted earnings of 19 cents per share, crushing the analyst consensus of 7 cents. Revenue jumped 164.8% year-over-year to $47.59 million, far exceeding the Street's estimate of $34.09 million. Adjusted gross margin expanded to 45.0% from 8.2% in the same quarter last year, driven by higher volumes and a favorable product mix.
Adjusted operating profit came in at $11.2 million, a stark improvement from the $6.1 million loss in the prior-year quarter. The company also ended the quarter with $748.8 million in cash, cash equivalents, and investments as of June 30, 2026.
Record Indium Phosphide Revenue
The star of the show was indium phosphide (InP), a key material for optical connectivity in AI data centers. InP revenue hit a record $30.7 million, driven by strong demand from AI applications.
CEO Morris Young said the company has reached a key inflection point, with strong demand for data center optical connectivity, expanding manufacturing capacity, and improved productivity driving a significant increase in revenue. He highlighted that the second quarter marked AXT's highest quarterly indium phosphide revenue to date.
Breaking down revenue by product category: gallium arsenide contributed $6.6 million, germanium substrates brought in $272,000, and consolidated raw material joint venture revenue hit a record $10 million. The company's top five customers accounted for approximately 30% of revenue, with no single customer contributing more than 10%.
InP backlog exceeded $100 million, with demand continuing to outpace supply. Growth is being fueled by AI data center expansion, including adoption of 800G and 1.6 terabit optical transceiver modules, as well as future near-packaged optics and co-packaged optics technologies.
In China, revenue from InP-based laser markets more than doubled sequentially in the second quarter, with further growth expected in the third quarter of 2026.
Outlook & Management Commentary
Looking ahead, AXT is projecting third-quarter adjusted EPS of 30-32 cents per share, versus the consensus of 11 cents, and sales of $66 million, versus the Street view of $38.801 million. The company also anticipates GAAP EPS of 29 to 31 cents, compared to the 9 cents estimate.
AXT is on track to double InP production capacity in 2026, driven by faster capacity expansion, improved manufacturing productivity from new crystal growth furnace designs, and customer migration toward larger-diameter substrates and higher-value products.
The company expects to more than triple its InP revenue opportunity by the end of 2026, with further expansion anticipated in 2027. AXT expects AI infrastructure growth to support a multi-year demand cycle for InP materials.
AXTI Price Action: AXT shares were up 36.34% at $64.00 during premarket trading on Friday.
