AXT Reports Q1 FY2026: Revenue Beats, Gross Margin Soars, and Capital Expenditure Plans Unveiled

AXT's Q1 FY2026 revenue came in at $26.9 million, surpassing the street estimate of $26.2 million by 2.7%. This marks a sequential increase of 16.9% from the $23.0 million reported in Q4 FY2025 and a year-over-year growth of 39.1% compared to $19.4 million in Q1 FY2025. The revenue breakdown by product category highlights the company's diversification and strength in key markets:

• Indium Phosphide (InP): $13.6 million, primarily driven by data center applications.
• Gallium Arsenide (GaAs): $5.4 million.
• Germanium Substrates: $200,000.
• Consolidated Raw Material Joint Ventures: $7.6 million.

The geographic distribution of revenue also reflects AXT's global reach, with Asia Pacific contributing 78%, Europe 21%, and North America 1%.

Non-GAAP gross margin for Q1 FY2026 was 29.9%, a significant improvement from 21.5% in Q4 FY2025 and a negative 6.1% in Q1 FY2025. On a GAAP basis, the gross margin was 29.6%, up from 20.9% in Q4 FY2025 and a negative 6.4% in Q1 FY2025. This margin expansion is a clear indicator of the company's operational efficiency and the positive impact of higher revenue.

AXT reported a non-GAAP net loss of $585,000, or $0.01 per share, in Q1 FY2026. This is a significant improvement from the non-GAAP net loss of $2.3 million, or $0.05 per share, in Q4 FY2025 and the non-GAAP net loss of $8.2 million, or $0.19 per share, in Q1 FY2025. On a GAAP basis, the net loss was $1.6 million, or $0.03 per share, compared to $3.6 million, or $0.08 per share, in Q4 FY2025 and $8.8 million, or $0.20 per share, in Q1 FY2025.

Total non-GAAP operating expenses in Q1 FY2026 were $8.6 million, up from $7.5 million in Q4 FY2025 and $8.5 million in Q1 FY2025. On a GAAP basis, total operating expenses were $9.6 million, compared to $8.7 million in Q4 FY2025 and $9.0 million in Q1 FY2025. The non-GAAP operating loss for the first quarter of 2026 was $550,000, a substantial improvement from $2.6 million in Q4 FY2025 and $9.6 million in Q1 FY2025.

AXT's capital expenditure plans for 2026 are in the range of $30 to $40 million, reflecting the company's commitment to expanding its production capacity and investing in R&D. This capital raise is particularly significant as it supports the expansion of Indium Phosphide (InP) capacity at Tongmei, which has a backlog of over $100 million. The expansion is expected to be completed by the end of 2027 or early 2028, with a target capacity of $65 to $70 million per quarter.

According to CFO Gary Fischer, "This year, it's compared to the future years, it's probably going to be $35 million in CapEx, maybe $30 million, maybe $40 million, somewhere in that range." The company's strategic investments are aimed at maintaining its competitive edge in the semiconductor substrate market and capitalizing on the growing demand for advanced materials.

AXT's top 5 customers generated approximately 32% of total revenue in Q1 FY2026, with no single customer exceeding the 10% level. This customer diversification is a positive sign, as it reduces the company's reliance on any single customer and mitigates risk. Key customers include:

• WIN Semiconductors (3105.TW): InP and GaAs substrates.
• IQE (IQE.L): InP and GaAs substrates.
• Coherent (COHR): InP substrates and compound semi wafers.
• Lumentum (LITE): InP substrates for EML laser fabrication.

On the supplier side, AXT relies on Korea Zinc (010130.KS) for refined indium metal, a critical component in the production of InP substrates. The company's strong relationships with these suppliers and customers are essential for maintaining a stable and efficient supply chain.

Comparing AXT's performance to its peers in the Substrates subsector, the company stands out with its revenue growth and gross margin improvement. For example, ROG reported a revenue of $200.5 million with a gross margin of 32.2%, and a year-over-year growth of 5.2%. AXT's revenue of $26.9 million, with a gross margin of 29.6% and a year-over-year growth of 39.1%, demonstrates the company's strong performance relative to its peers.

The tone of AXT's Q1 FY2026 earnings call was notably positive, with a sentiment score of 0.32, a guidance tone of 0.57, and a prepared sentiment of 0.42. These metrics represent significant improvements over the previous quarter, where the sentiment score was 0.22, the guidance tone was 0.34, and the prepared sentiment was 0.23. The call's increased positivity is reflected in the following key points:

• Revenue and Gross Margin: CFO Gary Fischer highlighted the company's revenue growth and gross margin improvement, stating, "Non-GAAP gross margin was 29.9% compared with 21.5% gross margin in Q4 of 2025 and a negative 6.1% gross margin in Q1 of 2025 last year."
• Capital Expenditure: CEO Morris Young discussed the recent capital raise and its impact on the company's expansion plans, noting, "As many of you are aware, last week, we completed a capital raise for $632.5 million in support of Tongmei's Indium Phosphide capacity expansion as well as R&D investment in new products like 6-inch Indium Phosphide and other working capital needs."

The call's increased positivity is also evident in the reduced uncertainty and improved AI optimism scores. The uncertainty index decreased from 73.6 in Q4 FY2025 to 86.5 in Q1 FY2026, while the AI optimism score increased from 0.58 to 0.67. This suggests that the company is more confident in its future prospects and is effectively communicating its strategic initiatives to investors.

AXT's Q1 FY2026 results demonstrate the company's ability to navigate a challenging semiconductor market and deliver strong financial performance. The revenue beat, gross margin improvement, and strategic capital expenditure plans position AXT for continued growth and innovation. The positive tone of the earnings call and the company's strong relationships with key customers and suppliers further reinforce the bullish outlook for AXT.

For more detailed analysis of AXT's earnings call tone, refer to the tone history.