$AXT(AXTI.US) Tried some options recently, but intraday options are too volatile lately, better to stick with the underlying stock and add a bit.
$AXT(AXTI.US) Yesterday, a buddy gave feedback on this company, it's the shovel within the shovels of the optical industry 👍🏻 Already held calls yesterday～
The core logic is the explosion of rigid demand for indium phosphide from AI computing infrastructure, confirming the "tech materials" core theme within the 2026 price increase narrative. 1. Demand side: Explosive growth in optical connectivity usage from AI data centers: 800G optical modules require 4-8 indium phosphide laser chips, and the substrate usage for 1.6T optical modules is 2.7-3 times that of 800G. NVIDIA's Quantum-X switch is equipped with 18 silicon photonic engines per unit, all relying on indium phosphide substrates. Orders are overflowing: AXT has over $60 million in backlog orders,
Customer demand forecasts are already scheduled until 2027, with some extending beyond 2030. The company expects orders for inter-rack (scale-out) to double in 2026 and double again in 2027.
CPO catalyst: Co-packaged optics (CPO) technology enters its first year of commercial use in 2026, tightly packaging optical engines with compute chips, which demands higher stability from indium phosphide substrates and significantly increases the demand density per chip. 2. Supply side: Long expansion cycles, a gap of 70% with highly concentrated capacity: Over 90% of global capacity is concentrated in three companies: Sumitomo (42%), AXT (36%), and JX (13%). Expansion cycles are as long as 2-3 years: Expanding indium phosphide substrate production requires site construction, furnace room setup, and worker training, making it difficult to respond to explosive demand in the short term.
Supply-demand gap: Global demand in 2025 is about 2 million wafers, with capacity only at 600,000 wafers, a 70% gap. Demand in 2026 is expected to be 2.2-2.5 million wafers, with the gap likely to remain above 70%. 3. Prices have entered an upward trend. 2-inch substrates: Increased from $800/wafer at the beginning of 2025 to the current $2,300/wafer, a 187.5% increase. 6-inch substrates: Prices have exceeded $5,000/wafer, up 250% year-over-year. Price increase expectations: Downstream acceptance of price hikes is high (substrates only account for about 2% of optical module costs), with premiums for tight models potentially reaching 30%.
Indium: Indium phosphide is the key substrate material for 800G/1.6T optical modules. Institutions predict the global market size will exceed 5 billion yuan in 2025. Domestic substitution is imminent, with current 90% reliance on Japan's Sumitomo and the US's AXT.
The A-share Rui isn't as pure, so also keep an eye on: Yunnan Chihong Zinc & Germanium, Kaide Quartz (I currently have no position in these).
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