AXT Touts Surging Indium Phosphide Demand for AI Data Centers at Needham Conference Amid Export Curbs

Core Insights - AXT emphasizes the growing demand for indium phosphide wafers, driven by the increasing optical connectivity needs in AI data centers, with expectations for significant order growth in the coming years [5][7][10] Company Overview - AXT, founded in 1986 and publicly listed since 1998, specializes in producing compound semiconductor wafers, particularly for applications where silicon wafers are inadequate, with manufacturing based in China and headquarters in Fremont, California [4][21] - The company manufactures three core semiconductor substrate materials: germanium, gallium arsenide, and indium phosphide, with indium phosphide being highlighted as a key growth driver [3][21] Market Demand - Indium phosphide is identified as a critical substrate material for optical transceivers, with demand expected to double in 2026 and again in 2027, particularly as data center connectivity shifts from copper to optical links [7][10] - Current revenue from AI data center connectivity is estimated to be in the single digits, approaching 10%, but is anticipated to grow rapidly, with data center-related demand representing approximately 30%-35% of the total addressable market for indium phosphide substrates [8] Capacity Expansion - AXT plans to double its indium phosphide capacity by 2026 through repurposing existing facilities, which allows for a cost-effective and timely expansion compared to competitors [6][17] - Competitors like Sumitomo are also expanding capacity but may take longer, positioning AXT favorably to gain market share [18] Supply Chain and Vertical Integration - AXT's vertically integrated supply chain in China includes multiple raw material-related companies, which helps mitigate supply chain risks and control costs [11][12] - The company focuses on supplying bare substrates rather than epitaxial wafers, serving various epi vendors and laser manufacturers [13] Export Controls and Geographic Exposure - Export controls pose a significant risk, as indium phosphide was added to China's export control list, requiring AXT to secure permits for overseas shipments, which can lead to unpredictable delays [14][15] - Historically, AXT's revenue has been approximately 40%-50% from China, with a growing share of indium phosphide revenue coming from outside China, currently estimated at over 70%-75% [16] Pricing Strategy - AXT expects pricing to remain stable across most applications, although it is reassessing pricing strategies to establish a standardized baseline, avoiding broad price increases while competitors have pursued significant hikes [19]