AXT's $100M Order Backlog Faces Its Toughest Test: Chinese Export Approvals
Published on 09/02/2026 at 16:13 | Editorial boerse-global.de
The disconnect between AXT's operational trajectory and its share price has rarely been starker. The semiconductor materials supplier is sitting on a backlog of customer contracts exceeding $100 million from its second-quarter 2026 supply agreements — commitments stretching into 2027 with clients including Casela, Coherent and Lumentum — yet the stock continues to bleed value.
That tension came into sharp focus again on Tuesday, when shares shed another 7.8 percent to close at €48.10. The weekly decline now stands at 14 percent, with the monthly slide reaching 19 percent. The selling pressure, which began in late August, has swept across the broader optics and semiconductor materials complex, dragging down peers such as Lumentum, Coherent and Applied Optoelectronics without any single company-specific catalyst.
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A Capacity Story Hanging on Beijing's Approval
What makes the current moment pivotal is the collision between near-term market anxiety and a long-term growth narrative that remains largely intact. At the heart of that narrative is an aggressive expansion of indium phosphide production capacity — the material that has become central to AI data center demand.
Management has raised its quarterly production capacity target for end-2026 from $35–40 million to roughly $60 million, with plans to double that again to approximately $130 million per quarter by 2027. Whether those targets are met hinges critically on Chinese export approvals, a risk that materialized earlier this year when the company was forced to cut its revenue forecast after the Chinese Ministry of Commerce failed to grant necessary permits.
The third-quarter 2026 revenue guidance of $66 million, with earnings per share between $0.30 and $0.32, is explicitly based on orders that either already hold export approvals or don't require them. Any additional permits granted would provide upside to that figure.
The Bull Case: Record Results and a Fortified Balance Sheet
The second quarter of 2026 offered a glimpse of what full execution could look like. AXT posted record revenue of $47.6 million, up 77 percent quarter over quarter, driven by indium phosphide sales into AI data center applications. Non-GAAP gross margin jumped from 29.9 percent to 45.0 percent, and the company returned to profitability with non-GAAP net income of $11.9 million.
Management has signaled ambitions for gross margins "starting with a 5" once 6-inch production scales up. The company's capacity to fund that expansion was bolstered in April, when a share placement brought in roughly $632.5 million gross, earmarked primarily for expanding indium phosphide manufacturing at its Beijing subsidiary Tongmei.
The summer's long-term capacity reservation agreement with Lumentum Operations — covering indium phosphide wafer substrates through end-2031 and backed by two prepayments of $43.5 million each — adds contractual visibility that stands in contrast to the recent share price weakness. From this perspective, the sell-off looks less like a fundamental reversal and more like a technical pause following an extraordinary rally.
The Bear Case: Volatility and Execution Risk
Yet the market's nervousness is quantifiable. The annualized 30-day volatility sits at 185 percent, reflecting just how skittish trading in the stock has become. At €47.40, the shares hover barely above their 200-day moving average of €47.31, having fallen 20 percent in a month. A break below that long-term line would flash a technical warning signal.
Wedbush flagged potential China-related delays as a central overhang for the stock as early as mid-August, and that assessment has colored much of the subsequent selling. The risk is that the same export restrictions that forced a guidance cut earlier this year could once again derail the ambitious capacity roadmap.
Insider activity has done little to calm nerves. Director Leonard LeBlanc sold shares worth approximately $605,695 in mid-August, following a pattern of insider selling in preceding weeks. More recently, he disposed of an additional 4,000 shares — a comparatively small volume, but one that adds to the cautious tone.
Institutional Confidence and Near-Term Catalysts
Against that backdrop, BlackRock has emerged as a notable counterweight. The asset manager acquired just over 5 million AXT shares in the second quarter of 2026, valued at approximately $365.6 million, building a 7.75 percent stake in the company.
Technical indicators paint a mixed picture. The stock trades 13 percent below its 50-day average, while its distance from the 200-day average is a far more modest 2.1 percent — suggesting the long-term trend remains unbroken even as short-term momentum deteriorates. The relative strength index of 41.4 points to neither overbought nor deeply oversold conditions.
The coming weeks offer several potential catalysts. After appearing at Needham's virtual semiconductor conference in late August, AXT is scheduled to present at B. Riley Securities' consumer and technology conference on September 10, followed by Morgan Stanley's Asia corporate access day on September 21–22. Any management commentary on the China export situation or order visibility could provide the market with greater clarity than it has had in recent weeks.
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The next concrete test, however, arrives with third-quarter results and the question of whether the $66 million revenue mark is actually achieved — and whether additional export approvals unlock further upside. Until then, the market's verdict on AXT's capacity story remains suspended between a record order book and the regulatory hurdles that stand between the company and its stated ambitions.
