QS Research · Michael Burry's Scion Capital analyst template · 2006
AXT INC (AXTI)
As of 2026-11-11 · 12/15 boxes filled from SEC filings and market data
Report price $39.31 (close 2026-11-10)
Conclusion: SHORT
Conviction medium · base case -93% · downside -93% · upside +27%
The market is capitalizing a genuine Q3 2026 inflection — revenue $73.4M, 56.0% GAAP gross margin, $28.4M operating income for the quarter ended 2026-09-30 (S103) — at a 17.88x TTM EV/Sales and 664.9x TTM P/E that already price years of perfect execution, while the TTM base the multiple rests on is only $3.9M EBIT (N14) and -$1.7M of cycle-normalized operating income (N38). Normalization is symmetric here: the 10-year mean operating margin of -1.4% (N39) is a trough, and even normalizing up leaves no positive operating base to capitalize, so the call rests on the TTM earnings beside the normalized figure, not on the normalization. Against that, the balance sheet is strong (net cash $333.0M, N24) and the Q3 beat is real, but ROIC of 0.4% versus an 18.7% WACC (N47, N48) and a -15.6% FCF margin (N43) mean the business does not yet earn its cost of capital, and the independent peer-median P/E of 44x (N65) values the equity near $2.60. The stock is a short on the anchored base with a real but bounded squeeze risk from a 21.8%-of-float crowded short (N55, N57).
Key numbers
- Share price: $39.31
- Market cap: $2.58B
- Latest financial period: TTM to Jun 30, 2026
- Revenue (TTM): $125.5M
- EV / EBITDA (TTM): 166.9x
- P/E (TTM): 664.9x
- FCF yield: -0.8%
- Price / book: 2.92x
- Earnings-quality flags (TTM): none flagged
- P/E, operating (tax-normalized) (TTM): 1053.3x
- Revenue growth (latest fiscal year): -11.1%
- ROIC (TTM): 0.4%
- WACC: 18.7%
- Economic profit spread: -18.2 pts
- EV / EBITDA sanity: outside the sector range
The 15 boxes
- ✓ 1. Long-form business notes
AXT makes compound and single-element semiconductor wafers (InP, GaAs, Ge) and the raw materials behind them, all manufactured in China by PRC subsidiaries and joint ventures; substrates were 67% of FY2025 consolidated revenue and raw materials 33%, versus 79%/21% in FY2020. The business is sharply cyclical and currently loss-making at the operating line: revenue $141.1M FY2022, $75.8M FY2023, $99.4M FY2024, $88.3M FY2025 with operating income of $12.6M, -$21.6M, -$14.8M and -$22.0M in those years, while TTM to 2026-06-30 shows $125.5M revenue and $3.9M operating income. The swing factors are policy, not demand alone: China's February 4, 2025 export-control listing of InP substrates puts every wafer family under MOFCOM permits, and US tariffs on the company's wafer substrates rose to 70% in March 2025, cutting North America to about 2% of 2025 revenue from 8% in 2024. A December 2025 Nasdaq offering plus the TTM balance sheet left cash at $412.2M and total equity at $887.3M (TTM to 2026-06-30), which funds capacity even while operating cash flow is negative (-$12.8M FY2025, -$5.8M TTM).
- ✓ 2. Competitive advantage
AXTI shows no durable competitive advantage in the provided 10-K: competition is intense, price-eroding, and customers typically keep at least two qualified substrate suppliers. The company claims only a supply-chain breadth advantage and technical support, while named rivals include Sumitomo, JX, Freiberger, Umicore, CCTC and Vital Materials. Margin history is cyclical, with negative operating income in FY2023-FY2025 and a small $3.9M TTM operating profit to 2026-06-30; gross margin ranged from 42.0% in Q3 2022 to 10.7% in Q3 2023 and was 22.3% in Q3 2025. The sources do not provide a KEY NUMBERS normalized operating income figure or the newer 8-K release.
- ✓ 3. 10-Q takeaways
Q2 2026 (quarter ended June 30, 2026) was a step-change quarter: revenue $47.6M vs $26.9M in Q1 2026 and $18.0M in Q2 2025, GAAP gross margin 44.9% vs 29.6% and 8.0%, and GAAP operating income $10.4M vs a $(6.7)M loss a year earlier. The balance sheet was rebuilt between December 31, 2025 and June 30, 2026 — cash $412.2M (from $120.3M) plus $298.6M of long-term investments that did not exist at year-end, against $84.2M of short-term loans — with inventories up to $96.3M from $81.7M. The gating item is unchanged: China's InP export permits, which management calls the most significant challenge it faces and which keep unpermitted backlog out of revenue; a second overhang is the ~$49M Tongmei redemption right triggered by the July 8, 2026 STAR Market IPO withdrawal.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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