Key financial results
- Revenue: Revenue for the third quarter of 2026 was $73.4 million, representing a 54% increase from the second quarter of 2026 and a 162% increase from the third quarter of 2025.
Revenue for the third quarter of 2026 was $73.4 million.
- Gross margin: Non-GAAP gross margin for the third quarter was 56.1%, compared with 45.0% in the second quarter of 2026 and 22.4% in the third quarter of 2025.
Non-GAAP gross margin was 56.1% compared with 45.0% gross margin in Q2 and 22.4% gross margin in Q3 of 2025.
- Gross margin: GAAP gross margin for the third quarter was 56.0%, compared with 44.9% in the second quarter of 2026 and 22.3% in the third quarter of 2025.
gross margin in the third quarter was 56.0% compared with 44.9% in Q2 and 22.3% in Q3 2025.
- Operating profit: Non-GAAP operating profit for the third quarter of 2026 was $29.5 million, or 40.2% of revenue.
Our non-GAAP operating profit for the third quarter of 2026 was $29.5 million or 40.2% of revenue
- Net profit: Non-GAAP net profit for the third quarter was $26.8 million, or $0.41 per diluted share, compared with $11.9 million, or $0.19 per share, in the second quarter of 2026.
We are pleased to report a non-GAAP net profit of $26.8 million or $0.41 per diluted share.
- Net profit: GAAP net profit for the third quarter was $25.7 million, or $0.39 per diluted share, compared with $11.1 million, or $0.17 per share, in the second quarter of 2026.
On a GAAP basis, net profit in Q3 was $25.7 million or $0.39 per diluted share.
- Balance sheet: Cash, cash equivalents, and investments increased by $77 million to $825.9 million as of September 30, up from $748.8 million at June 30.
Cash, cash equivalents and investments increased by $77 million to $825.9 million as of September 30.
Business segment results
- Indium phosphide: Indium phosphide revenue for the third quarter was $54.3 million, driven primarily by data center applications.
indium phosphide was $54.3 million, primarily from data center applications.
- Gallium arsenide: Gallium arsenide revenue for the third quarter was $9.1 million.
Gallium arsenide was $9.1 million
- Germanium: Germanium substrate revenue for the third quarter was $344,000.
germanium substrates were $344,000.
- Raw materials: Revenue from consolidated raw material companies in the third quarter was $9.7 million.
revenue from our consolidated raw material companies in Q3 was $9.7 million.
- Customers: The top five customers generated approximately 35% of total revenue, with one customer exceeding the 10% level.
The top 5 customers generated approximately 35% of total revenue and 1 customer was over the 10% level.
Capital allocation
- Prepayments: During the third quarter, the company signed a long-term supply agreement with Lumentum and received an upfront prepayment for wafers of $43.5 million, which is posted as a liability on the financial statements.
During Q3, we signed a long-term supply agreement with Lumentum. Under the terms of the agreement, we received a prepayment for wafers of $43.5 million.
- Returns: Management did not discuss share buybacks or dividends on the call.
Industry trends and dynamics
- Data centers: The transition to 800G and 1.6T transceiver modules is generating strong demand for indium phosphide-based lasers and detectors for AI data centers.
the transition to 800G and 1.6T transceiver modules is generating strong demand for indium phosphide-based lasers and detectors
- Demand and backlog: Market demand is currently exceeding supply, and the company's backlog has surpassed $500 million, including long-term agreements, short-term contracts, and spot purchase orders.
Demand remains ahead of supply even as we accelerate the pace of our capacity addition.
- Regional demand: China is emerging as an important growth market, and shipments within China do not require an export license.
China is also emerging as an important growth market as it accelerate investment across the AI supply chain.
Competitive landscape
- Barriers to entry: The competitive landscape for high-quality indium phosphide is limited to a few players due to very high technical barriers to entry and sensitive crystal growth processes.
the competitive landscape for high-quality indium phosphide is limited to just a few players due primarily to the very high technical barriers
- Product advantages: The company's low etch pit density (EPD) substrates provide a major value proposition advantage against competitors for high-power lasers.
our low EPD substrates give us a massive value proposition advantage against our competition.
Macroeconomic environment
- Trade and regulations: Management noted potential risks regarding global economic and political conditions, including trade tariffs and import and export restrictions, as well as the ability to obtain China export permits.
global economic and political conditions, including trade tariffs and import and export restrictions, ability to obtain China export permits
Growth opportunities and strategies
- Capacity expansion: The company surpassed its goal to double indium phosphide capacity in August and is currently in the design phase of converting an adjacent building for further production.
I'm pleased to report that we surpassed that goal in August and continue our expansion as an ongoing effort.
- Furnace technology: New proprietary crystal growth furnace designs are delivering meaningful gains in manufacturing productivity, output, and support for 6-inch indium phosphide production.
new proprietary crystal growth furnace designs are delivering meaningful gains in manufacturing productivity and output.
- Tongmei financing: Subsidiary Tongmei entered into a definitive agreement for private equity financing of up to $545 million to expand indium phosphide and raw material capacity while maintaining AXT ownership of approximately 73.4%, ahead of a planned Hong Kong IPO.
Financial guidance and outlook
- Q4 Revenue: For the fourth quarter of 2026, the company expects approximately $90 million in revenue for which it has shipping permits or for which permits are not required.
As of today, we have approximately $90 million in revenue that can be realized in Q4 across our substrate product lines and raw materials
- Q4 OpEx: Fourth-quarter operating expenses are expected to be approximately $13 million on a non-GAAP basis and approximately $14 million on a GAAP basis.
we expect that it will be approximately $13 million in Q4 on a non-GAAP basis and approximately $14 million on a GAAP basis.
- Q4 Non-GAAP EPS: Fourth-quarter non-GAAP net income is expected to be in the range of $0.57 to $0.59 per share.
we believe our non-GAAP net income will be in the range of $0.57 to $0.59
- Q4 GAAP EPS: Fourth-quarter GAAP net income is expected to be in the range of $0.56 to $0.58 per share.
and GAAP net income will be in the range of $0.56 to $0.58.
- Q4 Shares: Fourth-quarter share count is estimated to be approximately 66.1 million shares.
We estimate the share count for Q4 will be approximately 66.1 million shares.
Q3 2026 results
| Metric | Result | Change |
|---|---|---|
| Revenue | $73.4 million | Up 54% sequentially and up 162% year-over-year |
| Indium phosphide revenue | $54.3 million | Not stated |
| Gallium arsenide revenue | $9.1 million | Not stated |
| Germanium substrates revenue | $344,000 | Not stated |
| Raw material companies revenue | $9.7 million | Not stated |
| Non-GAAP gross margin | 56.1% | Up from 45.0% in Q2 2026 and 22.4% in Q3 2025 |
How management sounded
Positive (+45 on our -100 to +100 scale). Management expressed strong confidence driven by surging indium phosphide demand, capacity expansion, and significantly improved profitability. Management sounded more upbeat than on 62% of the 302 calls we cover; most companies sound positive on their own calls, so the comparison says more than the label.
Read the analyst Q&A summary and guidance and outlook for this call.
What to watch before the next call
- Execution of capacity expansion and conversion of the newly acquired adjacent building for indium phosphide production.
- Progress of the majority-owned subsidiary Tongmei toward a public offering on the Hong Kong Stock Exchange.
- Ramp and yield improvements on 6-inch indium phosphide production lines.
Earlier calls
- Q2 2026 (Jul 30, 2026), tone Positive: AXT reported record second quarter revenue of $47.6 million, driven by strong indium phosphide demand for AI data centers.
