Why does AXT's backlog refuse to shrink after revenue grew 164% in a year?
AXT to double InP capacity during 2026.
This is expected to make AXT "by far the largest indium phosphide producer in the world."
Customer demand continues to outpace supply, no matter how fast we add capacity.
AXT posted second-quarter 2026 revenue of $47.6 million, the highest in the company's history. That is up 164% from $18.0 million in the same quarter a year earlier, and up 77% in a single quarter from $26.9 million.
Quarterly revenue is 2.6 times what it was a year ago and gross margin is 44.9%. This is a company selling substrates, close to raw material in the chain, where margins rarely climb this far. It means the product is scarce enough to command a price.
Retrieved 2026-08-03 · AXT Q2 2026 results release, GAAP basis
GAAP net income for the quarter was $11.1 million, or $0.17 per diluted share.
What AXT actually sells
Chips are built on a round plate called a wafer. Silicon is not the only material those plates are made of. Devices that make and receive light, meaning the lasers and detectors used in optical communication, work far better on plates made of indium phosphide. AXT makes and sells those indium phosphide plates. Inside data centers the links between servers are moving from copper to light, so demand for these plates rose suddenly.
Why the queue does not shrink as revenue grows
On the call the company said it will double indium phosphide capacity during this year, and double it again in 2027. Doing so, it says, would make AXT by far the largest producer of indium phosphide substrates in the world. Yet in the same session it said backlog remains well above $100 million, and that even that figure no longer captures all the demand available. However fast capacity is added, demand runs ahead of it. That passage matters more than the earnings figures. When the queue does not shrink at a company doubling its plants, room to raise prices appears. That is the basis for the company aiming above 50% against the 44.9% gross margin it posted in the second quarter.
So what settles it
The question comes down to one thing. Whether these results come from the structural shift to optical links, or are a peak made by orders bunched into one year. Gross margin after the build-out settles it. If margin sits near 50% once capacity has doubled, the company is standing where it can set a price, and if margin slips below the mid-40s as capacity arrives, what it collected until then was made by scarcity. Substrates sit at the very front of the chip supply chain. When the front runs short, nothing behind it ships no matter how good the design is. The moment AXT's queue starts shrinking is also the moment the optical bottleneck loosens.
- AXT's Q2 2026 revenue hit a record $47.6 million, up 164% from a year earlier and 77% from the prior quarter.
- On the surface it reads as a good quarter for a component maker riding optical demand.
- But the company says it will double indium phosphide capacity this year and again next year, and that a backlog above $100 million still does not capture all the demand.
What happened next
Awaiting gradingScore on quarterly results after capacity doubles at the end of 2026. If GAAP gross margin stays near 50%, the company is standing where it can set prices, and if it slips below the mid-40s, the margin until then was made by scarcity.
This author's record
- BullIn a quarter where revenue fell 7% and X-FAB posted a loss, what got confirmed…
- BullTwo earnings reports landed on the day chip stocks crashed together, revenue up…
- BullThe 'Photonics CEO' Who Said Pluggables Have 10 Years Left Runs a Laser Supplie…