AXT (AXTI) just posted Q1 results highlighting revenue growth tied to AI and data center demand, along with narrowing losses and a positive Q2 earnings outlook, while closing a large equity raise to fund capacity expansion and R&D.

The share price has surged recently, with a 1 month share price return of 96.69% and a year to date share price return of 638.54%. The 1 year total shareholder return is also very large, suggesting that momentum has been building around the AI and data center story as investors reassess both growth potential and risks.

If you are looking beyond AXT to other companies linked to AI infrastructure and data center build outs, it may be worth checking out 42 AI infrastructure stocks

With AXT now valued at about US$7.3b after a very large year to date share price gain, and with the stock trading above the average analyst price target despite an indicated intrinsic discount, is there still a buying opportunity here or is the market already pricing in future growth?

Most Popular Narrative: 303% Overvalued

The most followed valuation narrative pegs AXT's fair value at $30.75, far below the last close of $123.78, setting up a clear tension between narrative and market pricing.

Accelerating global demand for high-speed data center connectivity and AI infrastructure is driving increased adoption of indium phosphide substrates, where AXT is a top supplier with 40% share; as export permit headwinds ease, this pent-up demand is expected to produce sharp revenue growth and improved utilization of manufacturing capacity.

Curious what kind of revenue ramp, margin lift, and future earnings multiple are baked into that fair value, and how long the market is assumed to wait for it? The full narrative spells out those assumptions in detail, including how export permit constraints and AI demand are factored into the model.

Result: Fair Value of $30.75 (OVERVALUED)

However, that story can unravel quickly if export permit delays persist or if ongoing low gross margins and operating losses continue to pressure cash generation.

Another View: Cash Flows Paint a Very Different Picture

While the popular narrative sees AXT as 303% overvalued at $123.78 versus a $30.75 fair value, our DCF model points in the opposite direction, suggesting the stock trades at a 45.9% discount to an estimated future cash flow value of $228.79. Which story do you trust more: sentiment or cash flows?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out AXT for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 50 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With such mixed signals on valuation, sentiment, and fundamentals, it makes sense to move quickly, review the underlying data, and decide where you stand. To see both sides clearly, weigh up the 2 key rewards and 3 important warning signs

Looking for more investment ideas?

If you stop with just one stock, you risk missing other opportunities that might fit your goals even better, so keep broadening your watchlist with purpose.

• Supercharge your hunt for value by checking companies that combine quality fundamentals with attractive pricing through the 50 high quality undervalued stocks.
• Strengthen your income stream by focusing on higher yielding payout opportunities using the 12 dividend fortresses.
• Protect your capital by concentrating on companies with steadier risk profiles surfaced by the 66 resilient stocks with low risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.