AXT Inc. (NASDAQ:AXTI) experienced a dramatic surge in its stock price on Friday, jumping 27% in premarket trading after the company announced record indium phosphide (InP) sales that significantly boosted its gross margin. The stock was quoted at $59.60 ahead of the market open, up from Thursday's close of $46.94, representing a 27% gain. This follows a 27% rise during Thursday's regular session, bringing the cumulative increase to 61% compared to Wednesday's close.
The company's second-quarter results, released after the market close on Thursday, revealed a 165% year-over-year revenue increase to $47.6 million, with GAAP gross margin improving to 44.9% from 8.0% in the same period last year. The incremental gross margin on the additional revenue from the first quarter was an impressive 64.8%, meaning nearly 65 cents of every extra dollar in sales contributed to gross profit.
AXT's GAAP net income for the quarter was $11.1 million, a sharp turnaround from a loss of $1.6 million in the first quarter. Non-GAAP earnings per share came in at $0.19, compared to a loss of $0.01 in the prior quarter. The company's operating income reached $10.4 million, reversing a loss of approximately $1.6 million in Q1, though some of this gain was offset by dilution from a recent equity offering.
The results and the company's third-quarter outlook both surpassed consensus estimates by significant margins. Revenue for Q2 beat the consensus of $34.08 million by 39.6%, while non-GAAP EPS exceeded expectations by $0.12. For Q3, AXT projects revenue of approximately $66 million, a 70.5% increase over the consensus estimate of $38.7 million, and non-GAAP EPS of $0.30-$0.32, well above the $0.10 consensus.
CEO Morris Young described the quarter as AXT's "highest quarterly indium phosphide revenue to date," and noted that the company's order backlog has surpassed $100 million, extending into 2027. The company is targeting a quarterly InP revenue capacity of $60 million by late 2026, and $130 million by late 2027, though executives acknowledged that customer demand is currently outpacing existing capacity.
To support this growth, AXT has secured significant customer financing agreements. Coherent Corp. (NYSE:COHR) signed a three-year supply agreement for six-inch InP substrates, including a $22.3 million advance payment. Lumentum Holdings Inc. (NASDAQ:LITE) has secured six years of capacity with an upfront deposit of $43.5 million and an additional payment scheduled for 2028. These deposits help alleviate financing strain but are not recognized as revenue, and both agreements include protections for customers if AXT fails to meet capacity or delivery commitments.
CFO Gary Fischer expressed a "high degree of confidence" in reaching the $66 million Q3 revenue target, which is achievable with current export permits. Additional permits could increase this figure, but the timeline for approvals remains uncertain. The company's implied enterprise value surged to approximately $3.27 billion in premarket trading, representing 12.4 times annualized Q3 revenue forecast, up from 9.2 times at Thursday's close.
Investors will be watching for updates on export permits, order conversions, and any changes to analyst estimates. Northland's Tim Savageaux reaffirmed a Buy rating and $125 price target on Thursday. Friday's opening volume will be a key indicator, with premarket trading around 453,000 shares compared to 18.6 million during Thursday's session. The stock remains 58.4% below its 52-week high but has shown significant volatility over the past week, ending at $47.23 on July 24 before dropping to $36.97 by Wednesday.
