AI fuels phenomenal gains in valuation
Companies involved in the supply chain for optical components in AI-centric data centre are seeing staggering gains in their share price.
BY RICHARD STEVENSON, EDITOR, CS MAGAZINE
Since its inception in 2006, there have been some astonishing figures in the yearly Compound Semiconductor Share Price Leaderboard, which tracks changes in valuation over a 12-month timeframe, running up to late April. Over the years, some standout numbers that will have delighted investors include Anadigics’ appreciation of over 600 percent in 2006 and Veeco’s increase by over 560 percent in 2010. And at the other end of the spectrum, results that will have disappointed include: the leaderboard from 2012, when the valuation of every company fell; and AXT’s and Wolfspeed’s plumetting valuations by just over 83 percent and 87 percent in the 12 months up to the end of April 2009 and 2025, respectively.
Against this backdrop, some of the latest results are completely off of the scale. This year, valuations of the top six have climbed by more than 400 percent – and the company out in front by an astonishing margin, AXT, has seen its share price increase by a whopping 5111 percent.
Driving these phenomenal surges in valuation, realised against headwinds of White House tariffs and a dubious war between the US and Iran, is the opportunity created by the roll-out of new generations of data-centres that will support the growth in AI.
A tremendous growth in AI is anticipated – although some fear it is a bubble that will burst – and companies playing a role in the supply chain for lasers for optical interconnects are enjoying a surge in sales. As data links shift to fibre from copper, which will only be used in the very shortest links, there are great opportunities for a ramp in revenue for makers of InP lasers and the supporting cast – that’s makers of epitaxial growth systems, and InP substrates and epiwafers.
AXT’s astonishing appreciation
One might easily assume that AXT’s eye-watering increase in valuation to an all-time high of around $75 has been fuelled by significant hikes in sales and profitability. But that’s not the case. It’s all about promise, and the opportunity that will be created by ramping the production of InP substates.
AXT’s current position can be seen in its most recent quarterly results, for the final fiscal quarter of 2025. For that three-month period, ending on 31 December, the company reported a net loss of $3.5 million on sales of $23 million, with revenue held back by export restrictions on InP substrates.
While these figures are far from impressive, the great potential for the substrate supplier was clearly evident its fourth quarter earnings call on 19 February, 2026.
During that call, AXT’s CFO, Gary Fischer, provided some insight into the importance of InP substrates within the company’s portfolio, and the dominance of local customers. InP sales netted $8 million, compared with $7 million for GaAs and just $231,000 for germanium; and 81.5 percent of sales came from companies in the Asia Pacific, with Europe accounting for 17.5 percent and North America just 1 percent.
The breakdown by geographical region will change, as AXT has received permits in the first fiscal quarter of this year. According to CEO Morris Young, who also spoke in the February earnings call, the permits, along with data centre-build out for AI, will help to increase revenue in the first quarter of this year.
“We’re also very pleased to note that we are seeing a welcome expansion of our customer base for indium phosphide,” added Young, who revealed that this includes domestic and overseas makers of optical transceiver modules. For these chipmakers, which are aiming to produce optical devices operating at ever higher speeds and featuring superior sophistication, AXT is keen to showcase the merits of its InP wafers with a low etch-pitch density.
There is great demand for AXT’s InP substrates. The backlog is rising, to stand at more than $60 million as of
19 February. Commenting on this, Young remarked: “Customers are planning for longer lead time by placing longer-term orders and giving us more visibility into their expected demand.”
The AXT CEO also offered some perspective on the AI market: “The massive AI infrastructure build-out and planned CapEx spending by cloud services and AI platform providers in the United States is the primary driver for EML [electro-optic modulator lasers] and silicon photonics-based optical transceivers.” He said that in China, while the data-centre build-out is early in its ramp, there will be rapid growth, as the world’s second biggest economy moves to accelerate its data centre expansion and AI capabilities.
To support growth in global production of InP lasers, AXT is expanding its capacity for InP laser production. It plans to double capacity between Q4 of 2025 and the end of this year.
“A major focus of this expansion will be an increased investment in our six-inch indium phosphide product,” remarked Young.
Helping fund this effort is a raising of $630 million this April, thanks to an over-subscribed public offering of common stock, initially planned to raise $550 million.
AXT’s GaAs substrates are used for the production of VCSELs, which are widely deployed in data centres. However, while a ramp in production of this class of laser will increase substrate demand, its impact will be minimal, as these devices are small. In contrast, VCSELs for machine vision are much larger. “They also require high quality material, which we are very well positioned to supply,” said Young.
Another strength of AXT is its vertical integration, with subsidiaries involved in raw material supply and the manufacture of InP crucibles.
“JinMei has begun to refine high-quality indium, which gives us direct control of a guaranteed supply of yet another critical material for our indium phosphide substrates,” remarked Young.
For the first fiscal quarter of 2026, AXT is forecasting total revenue of $26 million, based on orders with a permit to ship, and those that don’t require permits.
Offering some insight into the impact of permits, the VP of Business Development, Tim Bettles, explained in the investor call on 19 February that once a license is granted, AXT has a maximum of a 6-month window to deliver – and customers are often keen to receive substrates before this.
Demand shows no sign of abating. “We are talking about long-term supply agreements with a number of customers right now, and we are planning our business, according to those long-term supply agreements,” said Bettles, who added: “We’re seeing forecasts out beyond 2030 for many of these customers, but those numbers are increasing on a week-by-week basis.”
Lumentum’s momentum
After topping last year’s leaderboard with an appreciation of almost 40 percent, Lumentum, a maker of optical components, has dropped to second place, despite increasing its share price by more than 1300 percent.
Unlike AXT, Lumentum is profitable, with revenues at record levels and accelerating.
Emphasising that point when speaking to investors on 3 February 2026, in an earnings call to discuss results for second fiscal quarter of 2026, President and CEO Michael Hurlston remarked: “While we previously projected crossing $750 million in quarterly revenue by mid-2026, we now expect to comfortably surpass that milestone next quarter.”
Hurlston claimed that Lumentum is a foundational engine of the AI revolution. “Virtually every AI network is powered by Lumentum technology, either through our direct hyperscaler partnerships, or as the critical component supplier that enables our network-equipment-manufacturer customers.”
Lumentum, which believes that the vast majority of growth is still to happen, has identified three ‘primary catalysts’ for future growth: optical circuit switches, cloud transceivers, and co-packaged optics.
Discussing each in turn, Hurlston said that customer demand for optical circuit switches is intensifying, with an order backlog that’s surged well past $400 million. “Barring any unforeseen manufacturing or supply chain disruptions, we are well positioned to deliver on this substantial pipeline.”
Hurlston claimed that the company’s execution in cloud transceivers has reached a definitive turning point. According to this CEO, Lumentum is now a leading transceiver supplier, with success coming at time when customers are transitioning networks to 1.6T speeds. “Beyond design execution, we are also improving the profitability of our transceiver business, with better yields and lower scrap rates.”
Sales of Lumentum’s co-packaged optics are also thriving, thanks in part to a purchase order worth hundreds of millions of dollars for the company’s ultra-high-power lasers that support optical scale-out applications.
In addition to these three revenue streams – optical circuit switches, cloud transceivers, and co-packaged optics – Lumentum is eyeing an opportunity in the external light source market. Success in this sector would diversify the company’s customer base.
Hurlston also discussed optical scale-up, described as a generational game-changer for the industry. “Today, data centre architectures have a clear divide,” said Hurlston, who argued that optical links handle scale-out networking, connecting relatively longer links within the data centre, while ultra-short copper links are deployed within a single rack or a cluster. “While copper has long been the gold standard for scale-up for simplicity and cost, it is hitting a physical wall. An industry pivot is underway to bypass the scaling limits of copper. By late calendar 2027, we would expect our first scale-up CPO shipments, replacing longer copper connections.”
To respond to surging customer demand, Lumentum is increasing capacity through tool optimisation and yield gains. Even so, Hurlston revealed that the company is not meeting all customer demand, and its capacity for EMLs is ‘spoken for’ in long-term agreements (LTAs). “We have very tight LTAs that run through the balance of calendar 2027.”
Lumentum is working to increase its capacity. This March it announced that it had purchased a 240,000 ft2 facility in Greensboro, NC, from Qorvo. Production at this fab is expected to ramp in mid-2028. Nvidia, which has recently invested £2 billion in Lumentum, will serve as a customer of this facility, which could employ 400 staff.
* Converted to dollars using the exchange rates on 27 April of 1 EURO =
1.175 USD, 1 GBP = 1.355 USD, 1 CHF = 1.276 and 1 TWD = 0.03181. **
Wolfspeed restructured its finances on 29 September, 2025. The new share
price on that date is used as the initial share price.
Winning WIN
In third place on this year’s leaderboard, just ahead of global epiwafer supplier IQE, is the Taiwan foundry WIN Semiconductor.
WIN’s share price has climbed by more than 500 percent over the last 12 months. Gains have been supported by revenue that has recently climbed. For the most recent results, for the fourth fiscal quarter of 2025 that concluded at the end of calendar 2025, sales were up 7 percent over the previous quarter, and 29 percent higher year-over-year. Manufacturing margins are also improving, in part to a favourable product mix, with a consolidated gross margin for Q4 of 31.8 percent, up 4.9 percent sequentially.
For many years, WIN has focused on providing a foundry service for wireless products. However, it is diversifying into the optical sector, a move that will improve profitability, and allow WIN to play a role in the supply chain for components for data centres.
Commenting on the revenue mix in an earnings call on 1 February, 2026, to discuss Q4, general manager Steve Chen explained that yearly cellular revenue had fallen compared with 2024, due to WIN’s shift in focus to mid-high and premium models. For WiFi, per annum sales climbed by 11 percent, due to increasing adoption of WiFi 6 and WiFi 7. WIN’s infrastructure sales also grew year-over-year, increasing by 5 percent, due to a rise in satellite launches and more demand for GaAs for optical drivers, according to Chen. He remarked that for WIN’s optical sector, sales fells by around 15 percent from 2024 to 2025. Here, there’s been a softening of the market for 3D sensing, which initially accounted for 60 percent of WIN’s optical revenue.
Across all of these sectors, the most promising product for WIN is its 1.6T optical GaAs driver that can serve in AI datacentres. According to the company, demand for GaAs optical drivers will grow more than three-fold between 2025 and 2026.
Chen claimed that the company will be able to enjoy success in the optical market, due to strong relationships with tier-1 customers. Its portfolio will expand from VCSELs and InP PICs, both in mass production, to include CW lasers and EML lasers, with the broader range of sources covering optical links spanning a vast range of distances. “Right now, our CW laser and EML are undergoing qualification,” remarked Chen.
Skyworks: Strong but last
For just the third time in 20 years, all companies on the leaderboard increased in valuation over the last 12 months. But for Skyworks, footing this year’s table, appreciation over that timeframe was just 4.4 percent (note that its rival, Qorvo, which Skyworks is due to merge with early next year, only placed just one spot higher, indicating that makers of wireless chips are operating in a very different space from those making components that can serve in data centres).
Over the last 12 months, Skyworks’ share price has not moved that much, staying above $55 and peaking just above $80, and finished at a little more than $60 at the closing date for the leaderboard. Unlike some companies that have footed the table, Skyworks financial performance is solid – and while AXT, the darling of the last 12 months is not making a profit, Skyworks is, and is putting in a strong financial performance. In its most recently reported quarter, the first fiscal quarter of 2026, which ended on 2 January, the company generated a revenue of $1.035 billion and an operating income of $104 million. Sales and gross margin, just shy of 47 percent, were above expectations.
Skyworks is well-known for its role in the mobile industry, providing front-ends that freature GaAs-based amplifiers. This sector is still Skywork’s biggest earner. In Q1, 2026, mobile accounted for 62 percent of revenue, with the majority of sales associated with what’s described as flagship and premium-tier devices. There’s a heavy dependence on one customer, which accounts for two-thirds of Skyworks’ mobile revenue.
Commenting on the company’s sales to the mobile industry, in a call held on 3 February to discuss results for fiscal Q1 2026, Skyworks CEO Philip Brace remarked: “We outperformed expectations, supported by healthy sell-through and strong execution on new product launches at our top customer.”
According to Brace, smartphone replacement cycles are lengthy, but beginning to shorten. “This trend is driving increased unit growth as consumers upgrade more frequently, especially with the rise of new AI-capable devices and more integrated features.”
Skyworks is also shipping products used in WiFi products, with the company helping to lead advances in this technology.
“Wi-Fi 7’s higher throughput, lower latency and reliability, position it as an important enabler, as AI inference moves closer to the edge,” said Brace. “Design win activity remains strong, backlog is healthy, and we’re already engaged with customers on early Wi-Fi 8 programmes.”
Skyworks is also involved in the automotive market, where it provides device connectivity, and in data centre infrastructure, where it has products supporting timing accuracy and improving power performance.
For the next fiscal quarter, sales are forecast to fall to around $900 million, with mobile dropping by around 20 percent, which is said to be consistent with seasonality.
As well as this guidance, those on the call looked further ahead, offering views on the merger with Qorvo.
Brace remarked: “We believe this transaction is highly strategic and transformative, bringing greater scale, deeper R&D, and a broader technology portfolio. Together, this combination is expected to reduce historical mobile volatility, strengthen our competitive position, enhance our broad market capabilities, and expand our TAM into defence and aerospace, while creating a clear path to more than $500 million of synergies over time.” It is expected that gross margins in the merged entity will be 50-55 percent.
If the merger is approved, and proceeds on time, the new entity will be listed on the 2027 leaderboard. Which position it will take is anyone’s guess, and after the astonishing figures from this year, who knows what the future will hold. We’ll just have to wait and see.
