Rapidly Growing and Cheap, AXT Is a Top-Notch Data Center Play

AXT (AXTI) looks very well-positioned to benefit from extremely strong demand for its semiconductor materials from Lumentum (LITE), China, and U.S. data centers. Indeed, analysts on average expect ACTI's earnings per share to soar 263% this year and another 169% in 2027. Despite the huge, anticipated growth of the company's bottom line, the shares have a relatively low forward price-earnings ratio, based on analysts' average 2027 earnings per share estimate, of 30.2x.

In light of these points, AXTI stock looks like a very attractive name for growth and growth-at-a-reasonable-price investors.

About AXTI Stock

AXT creates and markets compound semiconductor substrates, primarily indium phosphide, gallium arsenide, and germanium. These products are key components of the lasers and detectors in high-speed optical networks. The latter networks, in turn, enable data to move rapidly within AI data centers.

In the second quarter, the company's revenue surged 164% versus the same period a year earlier to $47.6 million, and its bottom line came in at $11.1 million, compared with a loss of $7 million in Q2 of 2025. 

Despite being up over 250% year-to-date (YTD), AXTI has seen a lot of volatility recently and is down about 20% in the past five trading days. AXT presently has a market capitalization of $4.24 billion.

Lumentum and China

In July, AXT disclosed during its Q2 earnings call that it had made a deal to supply indium phosphide wafer substrates to Lumentum from this year until the end of 2031. At the time, AXT CEO Morris Young reported that AXT had become a key supplier of the products to Lumentum. And also indicating that Lumentum will spend significant amounts on AXT's indium phosphide wafer substrates. Lument agreed to provide a $43.5 million deposit around August 2026 and another deposit of the same amount sometime in 2028.

More recently, Lumentum on Oct. 12 noted that it “is sold out of its components through 2029,” and the company has said that it won't be able to satisfy roughly 70% of the demand for a portion of its products in 2026 and 2027, while its production of other products will come in 30% below demand “through 2028.” Investment bank Wedbush called this news “bullish” for AXTI stock. Given the extremely powerful demand for Lumentum's offerings, to the extent that AXT can produce more indium phosphide wafer substrates, AXT may very well be able to obtain significantly more revenue from Lumentum in 2026, 2027, and 2028.

Turning to China, Wedbush on Oct. 8 asserted that AXT can get a lift from strong demand by the Asian country's firms for optics and faster networks.

A Big Data Center Play

As another Barchart contributor, Rich Duprey, reported in May, “AI servers require compound semiconductors to move data rapidly while minimizing heat and power loss,” and AXT's substrates help accomplish that goal. So, with global data center capacity expected to double between 2026 and 2030, and despite some short-term headwinds, AXT and AXTI stock should be big beneficiaries of their considerable expansion.

On the date of publication, Larry Ramer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.